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DEFENSE STOCKS RISE; ATTACKS ON IRAN, U.S. BUDGET IN FOCUS

With the U.S. joining the Israel-Iran war over the weekend, defense stocks were outperforming the broader market on Monday.

Jefferies analyst Sheila Kahyaoglu pointed to U.S. President Trump "leveraging 'unity' in support of his One Big Beautiful Bill" (OBBB) and also noted that the Middle East escalation puts further emphasis on the full year 2026 defense budget.

Kahyaoglu notes that there already appeared to be a budget in place to support the Iran operation and in some cases, the replacement of the assets used.

And she notes that "underlining defense priorities is Golden Dome, a U.S. missile defense shield that has been broadly supported" with the reconciliation bill expected to provide a down payment for that system.

The analyst says "the strike could provide a catalyst to push through the reconciliation bill" (OBBB) in Congress.

But she points to mixed reactions to the U.S. in Washington with "some Democratic and Republican lawmakers calling on Congress to limit President Trump's authority to use force in Iran" and several calling for impeachment based on the lack of Congressional approval for the Iran strike.

U.S. Sen. Tim Kaine, a Democrat, said he expects the Senate to vote this week on a measure requiring the president to terminate hostilities against Iran unless authorized by a Congressional declaration of war. But Kahyaoglu writes that there does not appear to be enough support.

Either way, investors were putting bets on some defense stocks on Monday, with the S&P 500 aerospace and defense index .SPLRCAERO last up 0.9%, off its session highs.

Trading in the sector has been somewhat choppy since Israel's first attacks on June 13, with the index staying in a relatively tight range. But this was after it rallied more than 31% between April 8 and June 9.

Defense gains on Monday included advances of more than 1.8% in GE Aerospace GE.N. Northrop Grumman NOC.N, Lockheed Martin LMT.N, General Dynamics GD.N, Huntington Ingalls HII.N, Boeing BA.N and L3Harris LHX.N were each up 1% or more.

Meanwhile, Wall Street's major indexes were choppy as investors anxiously waited for Iran's response.

(Sinéad Carew)

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