Defense stocks trade higher after Israel airstrikes in Iran raise Middle East tensions

Stocks

Summary:

Defense stocks surged after Israel's airstrikes on Iran heightened Middle East tensions. Lockheed Martin rose 3%, oil prices jumped 8%, and U.S. markets opened lower amid fears of wider conflict.

Defense stocks climbed early Friday after Israel launched a series of airstrikes on Iran, raising tensions in the Middle East and heightening fears of a broader regional conflict.

Lockheed Martin (LMT) stock gained 3% early Friday, while shares of Northrop Grumman (NOC) and RTX (RTX) rose closer to 2%.

The three companies supply weapons to Israel through their contracts with the US government.

US stocks were lower at the open, with the S&P 500 and Nasdaq off about 0.7% while the Dow fell 1.1%. Overnight futures fell nearly 2% in immediate reaction to Israel's airstrikes, which were first reported near 8:00 p.m. ET on Thursday.

Oil prices were the biggest mover on Friday, rising as much as 8%.

Defense stocks have been on the rise over the past year, with Friday’s gains bringing RTX stock's gain to north of 35% over the past year, while Northrop Grumman is up 19.5%. Lockheed Martin has risen a more modest 3.9% over that time frame.

Palantir (PLTR), a defense contractor that has benefited both from the bid in defense names and its role in the AI boom, traded flat Friday morning. Its stock has soared more than 480% over the last year and is the best performer in the S&P 500 year to date.

RTX has outperformed Wall Street’s expectations since the fourth quarter of 2022. Lockheed Martin and Northrop Grumman have beaten analysts’ projections in seven and six of those nine quarters, respectively.

The Trump administration has promised a $1 trillion budget for US defense, but its fiscal 2026 budget looks set to fall short of that goal.

On Thursday night, Israel launched what it called a "preemptive strike" against Iran, targeting its nuclear facilities. The attacks continued into Friday, killing 78 people in Tehran including Iran’s top military leadership.

Iran’s foreign minister described the attacks as a “declaration of war,” and its supreme leader, Ayatollah Ali Khamenei, said Israel “should expect severe punishment.”

US President Trump urged Iran to “make a deal” in a post on Truth Social Friday.

“There has already been great death and destruction, but there is still time to make this slaughter, with the next already planned attacks being even more brutal, come to an end,” he wrote. “Iran must make a deal, before there is nothing left, and save what was once known as the Iranian Empire. No more death, no more destruction, JUST DO IT, BEFORE IT IS TOO LATE.”

Source: finance.yahoo

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Damon

Economic

U.S. consumer sentiment improved for the first time in six months in June as trade tensions between the U.S. and China eased, but households worried about the economy's trajectory.

The rise in sentiment reported by the University of Michigan's Surveys of Consumers on Friday was, however, overshadowed by Israel's missile strikes against Iran, which boosted oil prices to multi-month highs and weighed on global stock markets.

Though consumers' inflation expectations also improved this month, higher oil prices are likely to translate into pain at the pump. Gasoline prices have been generally low this year, freeing up much needed money for spending elsewhere.

"The improvement may be short-lived if current geopolitical risks as well as the increase in oil prices continue," said Eugenio Aleman, chief economist at Raymond James. "The same is going to probably be true for inflation expectations."

The University of Michigan's Consumer Sentiment Index jumped to 60.5 this month from a final reading of 52.2 in May.

Economists polled by Reuters had forecast the index would rise to 53.5. The index, however, remained about 20% below last December's level, when sentiment soared in the wake of President Donald Trump's victory in the November 5 election.

Sentiment rose across all age, income, wealth, political party affiliation groups and geographic regions. While the share of consumers giving unsolicited comments about tariffs was down from May, it was higher than any other month since the election.

Stocks on Wall Street fell. The dollar rose against a basket of currencies. U.S. Treasury yields were higher.

UMich current conditions and expectations

DOWNSIDE RISKS REMAIN

The U.S. and China have made big strides towards de-escalating their trade war, with Washington slashing tariffs on Chinese goods to 30% from 145% until mid-August. They agreed earlier this week on a framework covering tariff rates.

"Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed," Joanne Hsu, the director of the University of Michigan's Surveys of Consumers, said in a statement. "However, consumers still perceive wide-ranging downside risks to the economy."

Hsu said consumers' views on business conditions, personal finances, buying conditions for big-ticket items, labor markets and stock markets were all nowhere near the upbeat readings of six months ago.

Some economists were dismissive of the survey, noting that the response rate was very low. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, called it "a broken compass."

Consumers' 12-month inflation expectations fell to 5.1% from 6.6% in May. Hsu said consumers' fears about the potential inflation surge from import duties have "softened" somewhat.

Their views have probably been influenced by tame consumer price increases over the past three months.

UMich inflation expectations

Economists say consumer inflation has remained benign because businesses are still selling inventory accumulated before Trump's tariffs kicked in. They expect inflation to accelerate from June through the second half of the year. Long-run inflation expectations dipped to 4.1% from 4.2% last month.

"But the fact they (inflation expectations) remain historically high shows anxiety over prices hasn't dropped off consumers' list of worries," said Oren Klachkin, financial market economist at Nationwide.

Federal Reserve officials, who will hold a policy meeting on Tuesday and Wednesday, could take note of the decline in inflation expectations, though the higher readings had previously been dismissed as an outlier.

The U.S. central bank is expected to leave its benchmark overnight interest rate in the 4.25%-4.50% range at the end of its meeting next week while policymakers monitor the economic effects of tariffs.

Source: Reuters

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Adam

Stocks

Dow Drops Over 400 Midday as Israel Strikes Iran; Oil Surges, Tech and Financials Slide

Daily Nasdaq 100 Index

Stocks fell sharply at midday Friday after Israel launched airstrikes on Iran, stoking geopolitical risks and fueling a spike in oil prices. The Dow Jones Industrial Average shed over 400 points, while the S&P 500 and Nasdaq posted smaller declines of 0.3% and 0.4%, respectively. The biggest market movers were energy and defense names, while tech and financials led the downside.

Energy Sector Pops as Crude Jumps 6% on Middle East Conflict

Daily Light Crude Oil Futures

The energy sector was the top gainer by far, up 1.14% midday, as Brent and WTI crude each surged about 6% on fears of supply disruptions from the oil-rich Middle East. WTI nearly touched $74 a barrel.

S&P 500 and Nasdaq: Tech Stocks Drop—Nvidia, Apple Down; Oil Powers Exxon Higher_3

Daily Exxon Mobil Corporation

Major oil stocks like Exxon and Chevron rose over 1%, while Halliburton spiked more than 4%. The energy rally marks a notable pivot from the recent rate-driven pullback and positions the sector as a safe-haven trade in a risk-off environment.

Which Sectors Are Getting Hit the Hardest from the Oil Spike?

Daily American Airlines Group, Inc (AAL)

Travel-related sectors were under pressure. Airlines dropped sharply on expectations of higher jet fuel costs—American and United Airlines each lost 4%, while Delta fell 3%.

Cruise lines and hotel stocks also weakened, as investors priced in softer travel demand. Carnival fell 4%, Royal Caribbean and Norwegian lost about 2%, and hotel chains Marriott and Hilton were down about 1%.

Why Are Tech and Financials Underperforming?

Technology was the worst-performing sector midday, down 0.83%, with the Nasdaq sliding as traders trimmed exposure to growth stocks. Nvidia and other AI leaders sold off following recent gains.

Financials also dropped 1.46%, with rate volatility and risk aversion weighing on banks and credit names.

Consumer staples saw a 0.7% pullback, and real estate and utilities were both down around 0.9% and 0.5%, respectively.

What Are Traders Watching Next for Direction?

With markets on edge, attention remains fixed on further geopolitical developments. Traders are also eyeing energy prices for inflation implications. A sustained rally in crude could reignite broader concerns over Fed policy tightening.

Meanwhile, the University of Michigan consumer sentiment index jumped to 60.5 in June—well above estimates—offering a silver lining. Still, unless tensions de-escalate, the current safe-haven rotation into energy, defense, and gold is likely to persist. Traders will be closely monitoring comments from the Federal Reserve and further oil price action in the coming days.

Source: fxempire

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Adam

Forex

The dollar’s muted rally against major peers after Israel’s strikes on Iran reinforced the impression that the greenback’s role as a global haven is fading.

A Bloomberg gauge of the US currency gained as much as 0.6% at one point on Friday after Israel’s attacks targeting Iranian nuclear facilities stoked fears of a wider Mideast conflict, but the dollar pared much of the advance by midday in New York. It was last up about 0.1%.

The modest recovery leaves the greenback just above the three-year low it hit this week after President Donald Trump threatened fresh levies against global trading partners. The dollar slid the past five months as Trump pushed ahead with tariffs, which have raised concern over the US economic outlook and fueled speculation foreigners will shun American assets — the so-called Sell America trade.

“Dollar sentiment has taken a real hit,” Sonja Marten, DZ Bank’s head of FX and monetary policy, told Bloomberg Television on Friday. It would take “a complete escalation in the Middle East” to extend the dollar’s gains, she said.

The day’s trading pattern was a far cry from decades past, when international crises would typically fuel gains in the greenback and Treasuries, long considered havens in part because of their liquidity and confidence in the US as a leader in the global economy.

The 10-year US Treasury yield rose about 7 basis points on Friday as surging oil prices stoked inflation worries.

There are some signs that the gloomy stance toward the dollar is easing a bit. For example, options traders — while still broadly bearish on the US currency’s prospects — have moderated their negative views in recent weeks and are banking on a pause in the greenback’s sharp decline.

“The source of shocks to global risk and growth have been more concentrated in the US so far this year,” Goldman Sachs Group Inc. strategists Stuart Jenkins, Kamakshya Trivedi and Teresa Alves said in a report to clients on Friday. “If that source were to shift more to the rest of the world, the dollar may resume trading with more safe-haven type characteristics.”

The US’s position as the world’s largest oil producer likely helped buoy the dollar on Friday as crude futures soared, analysts said. So did the possibility of a squeeze in short positions against the greenback.

The Bloomberg Dollar Spot Index has dropped about 8% this year as Trump’s efforts to overhaul global trade chipped away at investor confidence in the US economy. There are also projections that proposed tax legislation will add trillions of dollars to the federal deficit, while America’s role in security and political alliances is also being called into question.

What Bloomberg Strategists Say...

“It won’t so much be about haven flows, but just about the fact that the US is the world’s largest oil producer. Given that the greenback had only just hit a fresh multi-year low, downside stops got cleaned out and the short-term market will get caught offside by a bounce, which means it may become a self-sustaining climb higher.”

Mark Cudmore, Markets Live strategist

At cross-border payments firm Corpay, Chief Market Strategist Karl Schamotta wrote that the risk-off tone permeating markets reminded investors that the dollar’s losses this year are more a reflection of long-term growth concerns — and less so of any change in short-term demand for the liquidity of US assets.

Before the attack, Wall Street banks were reinforcing their calls that the dollar would weaken further. Paul Tudor Jones, the founder of macro hedge fund Tudor Investment Corp., said the US currency may be 10% lower a year from now as he expects to see short-term interest rates cut “dramatically” in the next year.

Source:Bloomberg

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Kevin Du

Central Bank

The prospect of a shift in US monetary policy when President Donald Trump replaces Jerome Powell at the end of his term as Federal Reserve chair in May 2026 has interest-rate traders looking for pay dirt.

That was evident this week in Secured Overnight Financing Rate futures — a principal way for traders to wager on changes in the Fed’s policy rate. The combination of high-volume selling of the March 2026 contract and buying of the June 2026 contract amounts to a bet that the central bank will cut interest rates in the interim.

Volume in the spread between the two contracts exceeded 60,000 on Thursday, the second highest on record. The highest-volume day was April 9, when Trump’s decision to pause tariffs on some trading partners spurred huge moves in US financial markets. Open interest in the contracts — products of CME Group Inc. — increased, suggesting that traders set new positions in them as opposed to liquidating existing ones.

Fed policymakers have eight scheduled meetings a year to set the target band for the federal funds rate, which SOFR conforms closely to. The last one of Powell’s current term is set for April 28-29. The next one is June 16-17.

Speculation that a successor would cut interest rates immediately is rooted in Trump’s persistent scolding of Powell for not having done so already. In April, Trump said the end of Powell’s term “cannot come fast enough.”

Since then — including last week — Trump has said he won’t fire Powell. But he’s kept up pressure on the central bank to cut rates, and said he intends to name a successor soon.

Powell’s Fed raised interest rates sharply in 2022 and 2023 in response to accelerating inflation, and cut them three times toward the end of last year, before Trump was inaugurated to a second non-consecutive term in January.

Since then, policymakers — who’ve projected cutting rates further before next year — have taken the position that the 4.25%-4.5% band remains appropriate in light of employment and inflation trends.

That’s infuriated Trump, who during his first term in 2017 nominated Powell to become Fed chair the following year.

Fed policymakers have their fourth meeting of the year next week and are expected to leave rates unchanged. They also will update their economic projections for the first time since March, when their median forecast was for two quarter-point rate cuts by year-end.

Economists surveyed by Bloomberg predict quarter-point rate cuts in September and December this year.

Source: Bloomberg Europe

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Daniel Carter

Economic

Political

The strike now threatens two critical lifelines: Iran's own daily crude exports and the Strait of Hormuz, one of the most vital chokepoints for oil tankers in the world.

Iran had already been seeing drops in its oil shipments before the attack. In May, the country exported 1.7 million barrels a day, based on figures shared by Bernstein, a brokerage.

That's a small slice—less than 2% of total global oil consumption—but in today's energy market, even small cuts matter. With rising tensions, those exports are expected to dip further, and there's no timeline for how long this disruption could last.

OPEC increases output to stabilize the market

The Organization of the Petroleum Exporting Countries (OPEC), where Iran is a founding member, has already moved to raise production. By the end of June, the group plans to push out an additional 960,000 barrels per day, reversing past cuts.

Analysts tracking the cartel expect that to rise further to 2.2 million barrels daily, but that depends on how fast they act and how deep the damage to Iran's export system goes.

Even with that extra oil coming, the current supply balance is fragile. If Iran's barrels disappear faster than OPEC can fill the gap, prices could shoot higher. Before the attacks, oil was already hovering between $75 and $80 per barrel depending on the month. Now, traders are bracing for those numbers to go out the window.

But the much bigger risk lies offshore, not in Iran's pipelines. The Strait of Hormuz, a narrow sea corridor between Iran and Oman, carries nearly a fifth of all oil traded globally. It's also a major path for Qatar's liquefied natural gas exports. If Iran retaliates by disrupting shipping lanes or attacking vessels, the impact would go far beyond Iran's own oil.

JPMorgan analysts warned that if tankers can't pass through, oil could blow past $130 per barrel. If it hits $120, it could instantly add 1.7 percentage points to US inflation, which is already at 2.4% year-on-year through the end of May. That would hit consumers directly, especially in America, where falling gas prices have helped slow inflation.

Trump watches oil closely

Despite the risk, Iran has never actually blocked the Strait of Hormuz, though it has threatened to do so many times. The actual logistics of closing the channel would be difficult. But with President Donald Trump now back in the White House, oil prices have once again become a major focus for US foreign policy.

Israel is expected to avoid hitting Iran's oil infrastructure for now, likely out of concern over how Trump would react to another oil shock.

Economic growth expectations are already slipping. Higher oil prices could stall recovery plans and force central banks to hold off on any interest rate cuts. That would make borrowing more expensive and slow down job creation. The ripple effect is already being felt, and it's barely started.

A planned US-Iran nuclear negotiation scheduled for Sunday in Oman has already collapsed. Iranian state media confirmed they won't attend, setting the stage for more escalations. Maksad said that without Iran returning to talks, “Israel will have to take successive rounds of action to take out what's left of Iran's nuclear program.”

Just one day before the strikes, the IAEA Board of Governors, the U.N.'s nuclear watchdog, formally declared Iran in violation of its nuclear safeguards for the first time in nearly 20 years. That ruling was expected to raise tensions. Instead, it lit the fuse.

Iran's Supreme Leader, Ayatollah Ali Khamenei, posted a response to the Israeli strikes on X, threatening a violent reaction. “That [Zionist] regime should anticipate a severe punishment,” he wrote, adding that Iran's Armed Forces “won’t let them go unpunished.”

In a second post, Khamenei said, “Several commanders and scientists have been martyred” but promised that their replacements would continue operations without delay.

Source: CryptoSlate

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Thomas

Political

Israel's attack on Iran is the latest in a series of global conflicts that are ratcheting airlines' security concerns, while weighing on their operations and profitability.

An increasing number of conflict zones around the world means airlines are forced to take longer and costlier routes – impacting fuel, emissions and passengers.

For passengers, this means flight cancellations and delays or longer journeys as jets are diverted away from conflict areas. Airlines are grappling with more airspace closures, threats from missiles or drones and GPS jamming.

Israel's attack on Friday is part of a broader trend of escalating geopolitical tensions that are “directly impacting global aviation”, following the situations in Ukraine and the Red Sea, according to independent security, aviation, maritime and energy analyst Dean Mikkelsen.

“We’re witnessing a growing patchwork of restricted airspace and this is putting considerable pressure on airlines and passengers alike,” he told The National.

For travellers, the most immediate impact will be on fares as aviation disruption results in longer flight times due to rerouting. In this case, routes need to be adapted around Iranian, Syrian and at times even Iraqi airspace, Mr Mikkelsen said.

Fuel consumption is expected to rise significantly. Jet fuel already makes up around 30 per cent of an airline's operating costs and that burden only grows when 30 to 90 minutes of extra flight time is needed.

Mr Mikkelsen estimates that routes from Asia to Europe or the Gulf to North America could translate to a 7 per cent to 15 per cent increase in fares, particularly on long-haul itineraries, especially as the peak summer season approaches.

Other knock-on effects are those on crew hours, insurance premiums and scheduling complexity, all of which erode profitability, he noted. “Carriers already operating on tight post-pandemic margins will feel this sharply,” he added.

The Israel-Iran conflict throws the region's aviation industry into question, especially with the uncertainty about how long the hostility will last.

Airspaces should always remain neutral and accessible when it is safe to do so, according to the International Air Travel Association.

Closures, in addition to using them in retaliatory ways, “fragment global connectivity, disrupt operations and hurt passengers and economies”, the Geneva-based Iata said.

Conflict zones substantially add to the disruption risks: in 2024, geopolitical conflicts led to significant airspace restrictions, affecting a substantial portion of long-haul routes, according to Iata data.

For instance, the Russia-Ukraine conflict, now in its fourth year, forced the rerouting of about 1,100 daily flights, leading to longer flight times and increased operational challenges, it said.

Fuel and emissions have also surged. Detours around conflict zones can lead to an average fuel consumption increase of 13 per cent on affected routes, Iata added.

When British Airways had to suspend flights to Beijing because it needed to avoid Russian airspace, the flight time was almost three hours longer and fuel costs increased by a fifth.

In October 2024 alone, multiple flights encountered Iranian missiles aimed at Israel, leading to diversions and emergency manoeuvres, Iata said.

The effect that conflict zones have on airspaces is also reflected in the shift of activity to other areas. For instance, countries like Egypt, with many rerouted flights passing through its airspace, would result in increased overflight fees and greater regional air traffic.

“The Cairo Flight Information Region is becoming a crucial alternative corridor, alongside Jordan and Saudi Arabia,” Mr Mikkelsen said.

Airlines across the region have delayed and cancelled flights following Israel’s early morning attack on Iran.

Ben Gurion Airport in Tel Aviv has shut down until further notice, Iran has declared its airspace closed and Iraq has temporarily suspended civilian operations at all its airports.

In the UAE, Etihad Airways cancelled its services to and from Tel Aviv, as Israel placed its air defence systems on high alert in anticipation of possible retaliation.

Other major airlines, including Emirates, Lufthansa and Air India, rerouted services mid-flight on Friday. An Emirates flight from Manchester was diverted to Istanbul, while an Air India flight from New York to Delhi was diverted to Sharjah.