What happened
Defense stocks offered investors little defense against a broad market meltdown on Thursday. But just like the rest of the market, they're performing a bit better Friday.
In Thursday's market rout, shares of Lockheed Martin (LMT 0.64%), the world's largest pure-play defense contractor, fell 12.8%. Military truck- and helicopter-maker Textron (TXT 0.16%) tumbled almost 17%, while Boeing (BA 1.09%) -- a maker of Apache helicopters and F-18 fighter jets in addition to its better-known commercial airplanes -- fell more than 18%.
Today, they're up across the board. Lockheed stock gained more than 5% in early trading, and remains up a fraction of a percent as of 11:05 a.m. EDT. Textron and Boeing both booked gains in excess of 10% earlier in the day, and Textron is still hanging on to a 6.5% gain, while Boeing is up 9%.
Image source: Getty Images.
So what
The reason for the gains may not just be the dead-cat bounce that the rest of the market seems to be enjoying.
Responding to a rocket attack on U.S. and British military personnel that killed three soldiers in Baghdad on Wednesday, the United States on Thursday launched a series of airstrikes targeting Iran-backed militia bases.
In a statement, the Pentagon called its strikes defensive, proportional in nature, "and in direct response to the threat posed by Iranian-backed Shia militia groups," which suggests the strikes may have been a one-off. On the other hand, the renewal of hostilities between coalition forces and Iran-backed militias holds the potential to turn a cold peace in Iraq back into another hot war, and one that could spur demand for military materiel supplied by America's defense contractors.
Now what
No one should cheer such news, but the fact remains that arming troops for conflict is what these companies do; it's how they make their money. Bidding up shares of Lockheed, Textron, and Boeing is therefore a logical response to the news coming out of Iraq. And that would explain why today, these three stocks might perform a bit better than the rest.
