Defense Stocks May Gain as Iran Risk Boosts Spending, Citi Says

(Bloomberg) — Democrats may not be able to make a case against more defense spending as conflict in the Middle East ratchets up, according to Citi.

“Middle East tension could change the 2020 defense conversation,” potentially lifting a “defense sentiment overhang” for equities, analyst Jonathan Raviv wrote in a note. “As is always the unfortunate case, defense stocks tend to benefit from perceptions of heightened risk and the potential for geopolitical conflict,” he said.

On Thursday, a U.S. airstrike in Iraq ordered by President Donald Trump killed a key Iranian military leader, Qassem Soleimani, roiling global markets. U.S. equity futures fell, while haven assets including gold, the yen, and Treasuries rose and oil surged.

In December, Buckingham analyst Richard Safran (PA:) said U.S. defense stocks may again outperform in 2020 as the group typically does well in an election year, largely due to a “flight to safety trade.” His favorites were Lockheed Martin Corp. (NYSE:), Northrop Grumman Corp. (NYSE:) and L3Harris Technologies Inc (NYSE:)

Lockheed Martin rose 1.2% in pre-market trading on Friday.

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