Investors in weapons stocks have enjoyed record gains over the past year, dramatically outperforming the major stock indexes in a stock rally that analysts are attributing to violence and instability in the Middle East.
The same day, Israel, in defiance of the U.S., rejected a call for a ceasefire with Hezbollah, no doubt driving “incremental acceleration in demand” for weapons.
Israel's wars mean 'massive' returns for US arms company investors
One year after Oct. 7, arms industry stocks way outperformed the S&P 500 index fund
Oct 07, 2024
It’s hard to see the past year in the Middle East as anything other than an unmitigated disaster.
Over 41,000 Palestinians have been killed in Gaza by Israel’s nearly yearlong bombardment of the territory, and significant obstruction of food and medicine shipments as a form of collective punishment against the population following Hamas’ October 7, 2023, attack across the border that claimed 1,163 Israeli lives.
Over 41,000 Palestinians have been killed in Gaza by Israel’s nearly yearlong bombardment of the territory, and significant obstruction of food and medicine shipments as a form of collective punishment against the population following Hamas’ October 7, 2023, attack across the border that claimed 1,163 Israeli lives.
But not everyone has been harmed in the rapidly spiraling conflict. Investors in weapons stocks have enjoyed record gains over the past year, dramatically outperforming the major stock indexes in a stock rally that analysts are attributing to violence and instability in the Middle East.
- The war has now spread to Lebanon, which Israel invaded last week, and Iran, where Israel assassinated leaders of the IRGC, Hezbollah and Hamas, actions that Iran retaliated against with massive strikes against targets inside Israel.
How Israel pursues its murky war aims in both Lebanon and the Gaza Strip, as well as a promised escalation against Iran, remains to be seen. The Biden administration, having spent the better part of the year promising an imminent ceasefire in Gaza and quietly urging Israel to show greater care for protecting civilian lives, has little to show for its efforts as the U.S. simultaneously continues to provide billions of dollars of weapons to Israel to execute on its rapidly expanding war.
That handout of taxpayer funds to Israel coupled with Israel’s, and global, demand increasing for weapons in a period of instability, has been jet fuel for stock prices.
That handout of taxpayer funds to Israel coupled with Israel’s, and global, demand increasing for weapons in a period of instability, has been jet fuel for stock prices.
Lockheed Martin, the world’s largest weapons firm and the manufacturer of the F-35 aircraft that Israel uses in its regular bombings of Gaza, at the close of trading on October 4, has produced a 54.86% percent total return in the one year following the October 7th attacks, outperforming the S&P 500 by about 18%.
- Or, put another way, a $10,000 investment in the F-35 manufacturer right before the October 7 attacks would, one year later, have produced a $5,486 total return.
- A similar investment in an S&P 500 index fund would have produced only $3,689.
The weapons profits weren’t limited to Lockheed.
The second largest weapons firm, Raytheon, provides “bunker buster” bombs to Israel, weapons that are prohibited for use in areas with high civilian populations.
The second largest weapons firm, Raytheon, provides “bunker buster” bombs to Israel, weapons that are prohibited for use in areas with high civilian populations.
Israel has repeatedly used these weapons in high density areas in both Gaza and Lebanon, producing high civilian casualties.
Demand for these weapons and others have driven up Raytheon’s stock price and generated massive returns for investors.
Demand for these weapons and others have driven up Raytheon’s stock price and generated massive returns for investors.
- Raytheon’s total return for investors in the past year is 82.69%, outperforming the S&P 500 by about 46%.
- A $10,000 investment in Raytheon before the October 7 attacks would have produced a $8,269 total return.
While profiting off war may be distasteful for some, defense analysts at major investment banks grilled weapons executives in earnings calls last October about how the companies, and their investors, might profit from the war in Gaza.
“Hamas has created additional demand, we have this $106bn request from the president,” said TD Cowen’s Cai von Rumohr, during General Dynamics’ earnings call on October 25, 2023. In a question posed to General Dynamics executives on the call, von Rumohr asked, “Can you give us some general color in terms of areas where you think you could see incremental acceleration in demand?”
One year later, those analysts have been proven correct and Israel’s war grinds on as the White House finds its bids for ceasefires repeatedly rejected while, in seeming contradiction, supplying Israel with the weapons to continue fighting.
“Hamas has created additional demand, we have this $106bn request from the president,” said TD Cowen’s Cai von Rumohr, during General Dynamics’ earnings call on October 25, 2023. In a question posed to General Dynamics executives on the call, von Rumohr asked, “Can you give us some general color in terms of areas where you think you could see incremental acceleration in demand?”
One year later, those analysts have been proven correct and Israel’s war grinds on as the White House finds its bids for ceasefires repeatedly rejected while, in seeming contradiction, supplying Israel with the weapons to continue fighting.
United States Spending on Israel’s Military Operations and Related U.S. Operations in the Region
The Biden administration has provided Israel with at least $17.9 billion in military aid since the Oct. 7 Hamas attack last year and spent at least another $4.86 billion on its fight against Yemen’s Houthis, according to a new report released on Monday.
- However, the latest report was completed before the Pentagon announced additional troop and asset deployments to the Middle East last week, as well as the start of another Israeli invasion of Lebanon.
The report also did not include US efforts last week that helped Israel foil the largest-ever Iranian attack that included nearly 200 missiles.
Rough estimates suggest the attack cost north of $100 million, which saw the US use around 12 Standard Missiles.
The report was published by Brown University.
Some of the weapons delivered over the last year included artillery shells, 2,000-pound bunker-busting bombs, and precision-guided bombs.
- Replenishments for Israel’s Iron Dome and David’s Sling used for missile defense made up another big chunk of the US aid.
United States Spending on Israel’s Military Operations and Related U.S. Operations in the Region, October 7, 2023-September 30, 2024
Related U.S. military operations in the broader region since October 7 are part of the fuller picture.
- In particular, the U.S. Navy has significantly scaled up its defensive and offensive operations against Houthi militants in Yemen, which the Houthis claim is related to Israel’s war in Gaza.
- Hostilities have escalated to become the most sustained military campaign by U.S. forces since the 2016-2019 air war against ISIS in Iraq and Syria.
- U.S. operations in the region, including in Yemen, have already cost the U.S. government $4.86 billion (included in the overall figure, above, of $22.76 billion).
This report touches on the relationship between U.S. weapons manufacturers and the Israeli government, which have maintained longstanding commercial relations. The U.S. government has cited these commercial ties as one of the reasons why the U.S. should continue to supply foreign militaries, including the Israeli military, with weapons and equipment.
