On October 7th, a devastating attack by Hamas led to the death of approximately 1,400 individuals in Israel, triggering a forceful military response from Israel in the Gaza Strip. This event has not only caused widespread fear and led to further violence but also impacted the global stock market, especially within the arms industry. Major defence contractors like Lockheed Martin Corporation and Northrop Grumman Corp saw significant spikes in their stock prices as a result of the increased geopolitical tension, with Lockheed Martin experiencing its largest non-earnings day jump since March 2020. The defence sector overall has experienced growth, likely due to the increased demand for military equipment by Israel and heightened global military tensions. U.S. arms manufacturers, as major suppliers to Israel, have particularly benefited, with the industry seeing a general uplift in share prices following the U.S. military aid and the provision of advanced military hardware to Israel.
The terror attacks of 7th of October, 2023, when the proscribed group Hamas executed a devastating and strike on Israel, has proven to be a major turning point in the fortunes of the region and – for arms traders – beyond. The armed assault on a music festival and in multiple Kibbutz resulted in the tragic loss of approximately 1200 Israeli lives. In response, Israel launched an unprecedented military campaign targeting Hamas in the Gaza Strip, which has claimed the lives of at least 11,000 people in Gaza – of whom more than 4,500 were children, according to the Hamas-run health ministry.
The repercussions of these events have not only instilled fear, horror and loss among the Israeli and Gazan populations but have also exerted a significant impact on the stock market, particularly within the arms industry.
Stock Market Response to the October 7th Attacks
The financial landscape witnessed intriguing shifts in the aftermath of the October 7th attacks, particularly in the daily returns of key arms suppliers to Israel. Lockheed Martin Corporation, BAE Systems PLC, RTX Corp, and Northrop Grumman Corp all experienced notable changes in their stock prices, reflecting the market’s response to the heightened geopolitical tensions.
Lockheed Martin Corporation, a major defence contractor, saw a significant increase in its daily returns from 0.85% on October 6th to a remarkable 8.93% on October 9th[1].
This surge in Lockheed Martin’s stock price on October 9th marked its most substantial non-earnings day increase since March 2020. Similarly, RTX Corp and Northrop Grumman Corp respectively witnessed an increase from 0.56% and 0.75% on October 6th to 4.62% and 11.4% on October 9th, reflecting a notable positive shift[2].
These sharp movements in stock prices have not gone unnoticed, drawing attention from financial analysts. Forbes reported that Lockheed Martin’s stock jump on October 9th was the most significant for the U.S. largest defence contractor on a non-earnings day since March 2020.
Arms Companies and Share Price Increases
Beyond the industry’s immediate reaction to the October 7th attacks, defence and aerospace stocks have demonstrated a continued surge, aligning with the historical trend of such industries rising during geopolitical crises. Lockheed Martin witnessed an impressive increase of more than 12% from October 6 to October 26, a surge attributed partly to an earnings beat on October 17. General Dynamics also posted its largest gain on October 9, rising nearly 10%, while RTX experienced a notable recovery, surging 4.8% from October 6 to October 23 after trading near its lowest level since February 2021.
The impact on defence stocks extended beyond individual companies. The Aerospace/ Defense sector as a whole has jumped just over 2% from October 6, reflecting the collective positive movement in the industry.
Major arms companies, including Lockheed Martin, play a significant role in providing weaponry to Israel. For instance, Lockheed Martin supplies next-generation F-35 fighter jets and RTX delivers defence supplies such as the Iron Dome System and SkyHunter Missile.
The passing of a $14.3 billion US bill in military aid, coupled with additional gifts of A-10, F-15, F-16, and F-35 warplanes from Lockheed Martin, Northrop Grumman, BAE Systems, and RTX’s Pratt & Whitney division, further fuelled the rise in share prices within the defence industry.
Reasons behind the surge
The surge in profits for arms companies, particularly those supplying Israel, mainly finds its roots in Israel’s heightened demand for weaponry, propelled by an intense military retaliation campaign in Gaza since the October 7th attacks. Israel claims to have utilized over 10,000 bombs and missiles in the Gaza Strip, necessitating a substantial increase in military capabilities.
In this context, U.S. arms companies emerge as primary beneficiaries, capitalizing on their pivotal role as the largest exporter of arms to Israel. Between 2009 and 2020, more than 70% of Israel’s arms purchases originated from the U.S., as exemplified by the increased returns of key American arms suppliers since the October attacks.
Additionally, fears associated with the Russia-Ukraine war, as well as concerns that the Hamas-Israel conflict might extend beyond borders, amplify the global demand for military capabilities and equipment.
As Jim Taiclet, CEO of Lockheed Martin, highlighted in an interview, the changing global threat environment is “refocusing the US and certainly our allies around the world on national defence in an increasing manner”.
The aftermath of the October 7th attacks has created a surge in demand for weaponry. Israel’s military response in Gaza has significantly influenced the stock market, notably benefiting U.S. arms companies. As geopolitical tensions persist, the intersection of global conflicts and market dynamics reveals a complex landscape where fear and financial gains coalesce in times of uncertainty.
Dr. Iain Overton, the Executive Director of Action on Armed Violence said of the share price hikes: “The tragic events of October 7th in Israel and what the horrors that have unfolded since in Gaza have underscored a harsh reality of modern conflict: the intertwining of human tragedy and economic gain. As we mourn the loss of life on all sides, we cannot ignore the fact that the arms industry profits immensely from such conflicts. The surge in the stock prices of major defence contractors like Lockheed Martin and Northrop Grumman following the attacks is a stark reminder of this. It raises profound ethical questions about the relationship between global conflict and the economies that indirectly benefit from them. This is not just a matter of market dynamics; it’s a moral issue that calls for a serious re-evaluation of the global arms trade and its implications on international peace and security.
References:
Barhat, V. These Three arms stocks underpin US support for Israel, Morningstar UK. Available at: https://www.morningstar.co.uk/uk/news/240631/these-three-arms-stocks-underpin-us-support-for-israel.aspx (Accessed: 12 November 2023).
Bigg, M.M. (2023) What we know about the war between Israel and Hamas, The New York Times. Available at: https://www.nytimes.com/article/israel-gaza-hamas-what-we-know.html (Accessed: 12 November 2023).
Check out Lockheed Martin Corp’s stock price (LMT) in Real time CNBC. Available at: https://www.cnbc.com/quotes/LMT (Accessed: 12 November 2023).
Check out Northrop Grumman Corp’s stock price (NOC) in Real time CNBC. Available at: https://www.cnbc.com/quotes/NOC (Accessed: 12 November 2023).
Check out RTX Corp’s stock price (RTX) in Real time CNBC. Available at: https://www.cnbc.com/quotes/RTX (Accessed: 12 November 2023).
Gaza Strip in maps: Life in Gaza under siege (2023) BBC News. Available at: https://www.bbc.com/news/world-middle-east-20415675 (Accessed: 12 November 2023).
Goodkind, N. (2023) What the Israel-hamas war means for defense stocks | CNN business, CNN. Available at: https://www.cnn.com/2023/10/18/investing/premarket-stocks-trading/index.html (Accessed: 12 November 2023).
LMT Interactive Stock Chart: Lockheed Martin Corporation Stock – Yahoo Finance LMT Interactive Stock Chart | Lockheed Martin Corporation Stock – Yahoo Finance. Available at: https://shorturl.at/hlnCH (Accessed: 12 November 2023).
Miller, H. (2023) The israel-hamas war: Impact on and outlook for defense stocks, Investor’s Business Daily. Available at: https://tinyurl.com/4zsjzrp8 (Accessed: 12 November 2023).
NOC interactive stock chart | Northrop Grumman Corporation Stock Yahoo! Finance. NOC Interactive Stock Chart | Northrop Grumman Corporation Stock – Yahoo Finance. Available at: https://shorturl.at/ruvNP (Accessed: 12 November 2023).
Saul, D. (2023) Lockheed Martin, Northrop Grumman Stocks Notch Best Days in years amid Israel-hamas conflict, Forbes. Available at: https://www.forbes.com/sites/dereksaul/2023/10/09/lockheed-martin-northrop-grumman-stocks-notch-best-days-in-years-amid-israel-hamas-conflict/ (Accessed: 12 November 2023).
SIPRI arms transfers database SIPRI. Available at: https://www.sipri.org/databases/armstransfers (Accessed: 12 November 2023).
[1] Daily returns calculated based on data found on https://www.cnbc.com/quotes/LMT
[2] Daily returns calculated based on data found on https://www.cnbc.com/quotes/RTX and
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