Almost one week after Russia officially launched its invasion of Ukraine, countries across the globe are rethinking their military strategies. For some, that means strategically reimagining how they prepare for conflict. Two days ago, Germany shifted its longtime stance on sending weapons into conflict zones by exporting a supply of weapons to Ukraine. This morning, it was reported that the country would also be bolstering its own defense systems. The country is launching a fund worth €100 billion ($111 billion). This has been great news for Wall Street as American defense stocks have been rising since premarket trading today.
What’s Happening With Defense Stocks
Less than an hour after markets opened, defense stocks are on the rise. Northrop Grumman (NYSE:NOC) rose almost 2% in premarket trading today, while Lockheed Martin Corporation (NYSE:LMT) jumped 2.5%. Both companies are up more than 5% for the morning. Their peer, Raytheon Technologies (NYSE:RTX) rose 4% in premarket hours and is up 3% since market open.
Why It Matters
As previously noted, Germany’s recent shift represents what the New York Times refers to as a “foreign policy u-turn.” Following the crimes of the Third Reich, the European nation embraced policies driven by a military-averse mindset. It is no small thing for a country with this type of history to suddenly commit so much to defense spending.
If Germany is feeling pressure to bolster its military and defense systems in this way, other countries are likely to follow suit. This means that companies that produce military technology and weapons are likely to see a significant spike in demand throughout the coming months. Wall Street will be keeping a close watch on defense stocks as the industry prepares for a boom.
Last week, InvestorPlace identified three key defense stocks to watch as the invasion took shape. The names listed were LOC and LMT as well as Axon Enterprise (NASDAQ:AXON), another company trading in the green today. Late in January, InvestorPlace contributor Josh Enomoto flagged all three names among defense stocks to buy. A month later, Russian President Vladimir Putin has shown the world that he intends to carry out his threats of war. Other countries are preparing for the worst. That means doing what they can to bolster their military before it is too late.
What It Means for Defense Stocks
For the American weapons producers, this means a new boom. The U.S. was the world’s top arms exporter in 2021 with a market share of 37%. That was before a war in Europe seemed like a distinct possibility. Now that it is a reality, the weapons market is about to expand.
U.S. companies have dominated the weapons production industry for years. It has also been reported that they did not feel the effects of the Covid-19 pandemic as much as other industries. Given the U.S.’s history of excessive military spending, defense stocks have long been seen as a safe investment. They were rising on war speculation, but now that the invasion has begun, these companies have nowhere to go but up.
Investors should be watching defense stocks very closely as the conflict proceeds. Even if we see a ceasefire soon, the recent events in the Ukraine have alerted countries to the importance of a well-funded military. This is all around good news for the defense sector.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
