Defense Stocks Are a Rare Bright Spot in Friday's Session

By Michael Wursthorn 

Aerospace and defense stocks rose in the wake of the U.S.'s killing of an Iranian general as some investors wagered tensions between the two countries will ratchet higher.

But some analysts urged investors to look past the latest flare-up in geopolitical tensions and pounce on the broader stock market's pullback.

Shares of global security company Northrop Grumman Corp. led the defense rally, jumping 4.4% to be on pace for their biggest single day gain since late July. Lockheed Martin Corp., L3Harris Technologies Inc. and Raytheon Co. all rose more than 1%.

That helped push the $5.6 billion iShares U.S. Aerospace and Defense ETF up 1% in recent trading.

The defense rally represented a rare bright spot in the stock market Friday. Investors mostly retreated from stocks following the overnight strike, selling everything from airliners to banks to technology companies, while buying gold, oil and U.S. Treasury bonds. The S&P 500 was recently down about 0.5%, unraveling its gain for the week.

Some Wall Street analysts warned investors to avoid making knee-jerk decisions following the strike. Mark Haefele, global chief investment officer at UBS's wealth-management arm, said individual geopolitical risks such as this tend not to be enough to be a long-term driver of stock prices.

"Geopolitical events by their nature are unpredictable, but previous periods of increased tensions suggest that the impact on wider markets tends to be short-lived, with more lasting effects confined to local markets and assets that are directly impacted by the tensions," Mr. Haefele said.

Corporate profits and changes within the U.S. economy should remain the driving focus of investment decisions, even for aerospace stocks, which tend to see a boost following a geopolitical flare-up, analysts said.

If anything, investors should consider pouncing on some of the stocks investors were selling on Friday, such as shares of tech companies, said Dan Ives, a managing director of equity research at Wedbush Securities.

Mr. Ives recommended using shock events to buy favored tech stocks and other risky assets, such as shares of Apple Inc. Shares of the iPhone maker have more than doubled over the past year but were off 0.7% Friday.

"We remain firmly bullish on tech stocks and the growth prospects of the coming year and believe any temporary risk-off trade is a golden buying opportunity rather than a time to retreat with the bears yelling fire in a crowded theater," Mr. Ives added.

Write to Michael Wursthorn at [e-mail]

(END) Dow Jones Newswires

January 03, 2020 12:18 ET (17:18 GMT)

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