Monday, June 1st, 2020

Would an Arab Israeli Peace Deal Help or Hurt Defense Stocks?


The stock market is up today after the announcement of Saudi deals for arms and airplanes according to Investor’s Business Daily. This announcement comes as President Trump visits Saudi Arabia and signed defense agreements.

Defense stocks fueled a large share of Monday’s early action, stirred by more than $300 billion in deals announced Saturday between Saudi Arabia and the U.S. as part of Trump’s official visit to Saudi Arabia.

Boeing (BA) topped the Dow industrial in early trade, up 1.3%. The company announced on Sunday potential deals for up to 16 widebody jets with SaudiGulf Airlines, as well as a number of military-use jets. Boeing shares are trading below a flat base buy point of 85.81, ending Friday in a test of support at their 10-week moving average.

Dow peer General Electric (GE) rose -0.8%. On Saturday, GE announced $12 billion in contracts with the country, focusing on energy, aviation and other areas.

Raytheon (RTN) opened 1% higher. The Waltham, Mass.-based aerospace electronics leader on Saturday announced a strategic partnership with the Saudi Arabia Military Industries Company related to air defense systems, smart munitions, defense cyber security and other areas. Raytheon shares remain in a buy range, above a 157.69 buy point in a flat base.

Lockheed Martin (LMT) opened 2% higher on its own slate of Saudi deals, which include $28 billion in missile defense systems, naval ships, and helicopters, among other items.

The Saudis are trying to repair relations with the USA and part of that is a further beefing up of its military. But now Trump has flown to Israel, another huge buyer of arms. But in Israeli the talk, again, is of a peace accord. If peace comes to be between the Israelis and Arabs will this help or hurt defense stocks?

Iran and Terrorism

Israel, Egypt and Saudi Arabia are huge recipients of US weaponry. If these guys are not going to be fighting each other will they need weapons? The enemies and the types of weapons may change but there is still Iran which hates Saudi Arabia as much as they hate Israel and there are various terrorist organizations that hate everyone. In regard to the President’s attitude the appears to be a fresh approach to fighting terrorism according to an article in the Independent.

Saudi Arabia, the birthplace of Islam, will be the US President’s first stop on his debut foreign visit as president.

The move signifies the new administration’s intent to reinforce a relationship with a top ally in the Middle East, where the US is leading a coalition against Isis and seeking to counter Iranian influence. Saudi Arabia is part of that coalition.

So long as Israel, Saudi Arabia and Egypt view Iran as a threat they will want fighter jets and so long as terrorism exits they will want computer and surveillance systems as well. In short an Arab Israeli peace deal that excludes terrorists or Iran will leave the path open for US arms sales to the Middle East.

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