(Repeats story from Friday with no changes to text)
By Chuck Mikolajczak
NEW YORK, June 13 With the possibility of
escalating violence in Iraq, stocks in the defense sector could
garner more attention next week.
The stock market and oil prices were rattled late in the
week after violence in the nation escalated as a Sunni
insurgency against the government heats up. A continued
escalation of the conflict could result in a civil war and a
possible break-up of the country.
Even with tensions in the region mounting, the PHLX defense
sector was down about 1 percent for the week, retreating
with the broader S&P 500 after both indexes had closed at
record highs on Monday. Some caution in the market would be
expected, but higher oil prices and concerns about a worsening
of the conflict would be felt in defense and energy areas.
"As investors try to determine what stocks and which sectors
would benefit if we continue to see troubles in Iraq, it's
logical that more defensive sectors would benefit and especially
the defense stocks themselves," said Kate Warne, investment
strategist at Edward Jones in St. Louis.
"As investors get more nervous about the situation in Iraq,
it will be a typical situation where it's positive for the
stocks like oil ... and we will see more caution across the
board in other stocks."
Escalation doesn't necessarily mean investors will flock to
defense stocks solely on expectations they will see a revenue
boost as a result of an increase in new government contracts.
Americans are wary of getting re-involved in the fighting in
Iraq given forces are still in country after the U.S. invasion
in 2003 that has since cost the lives of more than 100,000
civilians and several thousand soldiers.
Scott Armiger, portfolio manager at Christiana Trust in
Greenville, Delaware has owned Northrop Grumman Corp
since August, but said, "We are not going to boost defense
stocks holdings on this move in Iraq, especially with this
administration. I surely don't think it's a build-up, it
conflicts with other agenda items, domestic is still number
The defense index has gained 93 percent in the last three
years. It has a 50-day correlation with the benchmark S&P index
of 0.89, but that may begin to break down should violence in the
region grow, putting stocks in the defense sector in position to
move higher while the broader market retreats.
The United States does appear to be acting in a deliberate
fashion for the time being. After threatening military strikes
against militants from the radical Islamic State of Iraq and the
Levant (ISIL) on Thursday, President Barack Obama said on Friday
he will take several days to review options for how the United
States can help Iraq deal with the insurgency.
Another consideration for defense stocks is they generally
have other businesses to go along with revenue generated from
defense contracts - Boeing is involved with commercial
airplanes and Precision Castparts also deals with
medical implants - so while they may get a lift from a growing
conflict it will not be the sole factor for any price boost.
"Many of the defense stocks trade with the expectations that
we will see cutbacks in government spending in areas like
defense but the stocks are really reflecting better performance
on other parts of the business," said Warne. "Any company that
relies solely on defense right now is probably not in great
(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)