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What the Israel-Hamas war means for defense stocks

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A version of this story first appeared on CNN Business’ Before the Bell newsletter. Not a subscriber ? You can register here. You can listen to an audio version of the newsletter by clicking on the same link.


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When war breaks out, defense companies tend to make money. This means that aerospace and defense stocks tend to rise during times of geopolitical unrest.

In the wake of the war between Israel and Hamas, shares of military contractors soared thanks to institutional and retail investors, according to a VandaTrack study.

The iShares US Aerospace & Defense ETF, which tracks companies including Raytheon, Lockheed Martin, Boeing, General Dynamics and Northrop Grumman, has jumped about 7% since the initial attacks on Israel earlier this month.

What is happening: During a recent earnings conference call, Lockheed Martin executives highlighted conflicts between Israel and Ukraine as potential drivers of increased revenue in coming years.

“In the longer term, some things change significantly. The first is the global threat environment and geopolitical situations that are becoming increasingly concerning and challenging,” Jim Taiclet, chairman and CEO of Lockheed Martin Corporation, said Tuesday. “This increasingly refocuses the United States and certainly our allies around the world on national defense.”

Some Wall Street titans also worry that the conflict could spread beyond Israel and Hamas. JPMorgan Chase CEO Jamie Dimon told investors Friday that “this may be the most dangerous time the world has seen in decades.” The war between Israel and Hamas and the war in Ukraine, he said, “could have considerable impacts on energy and food markets, global trade and geopolitical relations.”

Sam Stovall, chief investment strategist at CFRA, also pointed out that there have been several instances of conflicts in the Middle East “that triggered or exacerbated recessions and bear markets in the United States, such as the Yom War Yom Kippur in 1973 and Iraq’s invasion of Kuwait in 1990.”

High gains, few held: Despite recent stock price growth, defense stocks have had a tough year. What makes things particularly difficult for defense contractors is that President Joe Biden’s proposed budget, which includes a 4% increase in defense spending to $814 billion, remains in limbo, as Congress must act by November 17 to pass an appropriations bill or other continuing resolution to prevent a government shutdown. Year to date, the S&P 500 aerospace and defense index has lost about 8.5%, despite recent gains.

And even the last the gains could be short-lived. Defense stocks typically rise after military conflicts, but quickly lose those gains.

After Russia invaded Ukraine, the iShares defense ETF jumped 5%, with shares of Lockheed Martin and Northrop Grumman jumping about 20%. But within six months, these stocks reversed course, losing most of their gains.

“If the war remains confined between Israel and the Palestinians, it is likely that the markets will forget about it after a few days,” said Raffi Boyadjian, analyst at XM. A significant increase in the U.S. defense budget could lead to a lasting recovery, he said, but that is unlikely due to challenges from Congress and the limited scope of the Israel-Hamas conflict.

Meanwhile, investors appear unfazed. 10-year Treasury bonds the yield neared a 16-year high on Tuesday. Typically, rates fall during prolonged conflicts as traders move to safer assets. The stability of crude prices suggests that investors do not expect the conflict to spread to oil-rich countries.

Lollapalooza will never be the same.

Goldman Sachs CEO (and famous party DJ) David Solomon will no longer perform at high-profile events, preferring Wall Street to South Beach, a representative for the second-largest investment bank confirmed to CNN .

“David decided to stop publicly DJing more than a year ago due to the outside attention on the issue,” said Tony Fratto, a Goldman spokesman.

Solomon, who performed under the pseudonym DJ D-Sol, began playing tracks at festivals and nightclubs a few years ago. “(I) kind of stumbled upon it as a hobby, and now I just do it for fun,” Solomon, 61, said on a Goldman Sachs podcast in 2017.

Solomon’s unorthodox hobby probably caused a few scratches from board members who wondered why he couldn’t just take up golf, but that’s not the main reason the Goldman’s chief has found himself in a bit of a pickle lately.

The bank’s executive, who is celebrating five years at the helm of the company, is said to be accused by his former and current colleagues of poor leadership, and his ability to effectively run the company is also said to be questioned by the former president -general manager Lloyd Blankfein.

But Salomon ultimately answers to shareholders, the bank’s board and the bottom line. And even though shares of Goldman Sachs (GS) are down more than 8.4% this year, they are still up about 40% since he took office in 2018.

Goldman Sachs announced its third quarter results on Tuesday morning, with earnings of $5.47 per share, higher than the $5.31 expected by analysts. Revenue came in at $11.82 billion, compared to an expected $11.19 billion, according to Refinitiv data.

Yet profits fell 33% from the previous year.

After Elon Musk hinted last month that X might start charging all users, the company (formerly known as Twitter) announced a test of such a system.

X said in a job Tuesday that he is testing a new program called “Not a robot” in which new users in New Zealand and the Philippines will need to sign up for a $1 annual subscription to post and interact with other posts.

The test will only apply to new web accounts, and fees will be waived if users sign up for X’s $3.99 per month premium subscription service, my colleague Clare Duffy reports.

New users in the test region who opt out of the premium and annual subscription will only be able to read posts, watch videos and follow accounts, but not interact on the platform. Existing users will not be affected as part of the test.

The company said in its post that the program aims to “enhance our already successful efforts to reduce spam, manipulation of our platform and bot activity, while balancing the accessibility of the platform with the small amount of fees,” adding that fees are not meant to be a profit driver.



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