Christian Davies

First look, it seems very counterintuitive that U.S.

defense stocks should have fallen in the wake of such a high-profile conflict.

But yes, overall, they're down quite substantially.

We've seen similar movements in Europe.

And so this is really kind of a global sell-off defense stocks, despite this war going on in the Middle East at the moment.

Yes, well, this is often a misconception that investors tend to sell defense stocks at time of peace and buy them at times of war.

What they really do is buy at times of tension.

So if we expand our time horizon out a bit,

The defense companies like Lockheed Martin, Northrop Grumman, RTX, and so on, I mean, they were up around 50% in the year leading up to the Iran conflict because of all the different global tensions.

And as a product of those global tensions, we're seeing governments committing to higher defense budgets.

So it's really not war, but tension and the higher defense budgets that investors tend to use as moments to buy defense stocks.

And then when the actual war breaks out, this is often when investors sell.

And in general, the reason for that is that once a conflict actually starts, investors often turn their attention to other sectors, so-called safe haven assets, energy and utilities.

So this is a longstanding theme.

War is not necessarily the time to buy.

It's a time to sell.

So interesting.

The reason is that investors are not learning anything from these reports they didn't already know.

They knew that defense spending is going up.

They know that demand for defense products is very high.