LIVE MARKETS-Energy, defense up sharply, but off day's highs; strategists weigh near-term outlook
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ENERGY, DEFENSE UP SHARPLY, BUT OFF DAY'S HIGHS; STRATEGISTS WEIGH NEAR-TERM OUTLOOK
U.S. energy and defense shares are up sharply on Monday, strongly outperforming the broader trend in the market, as the U.S.-Israeli air war against Iran expanded, though the shares are well off the day's highs.
While off their highs of the day, the S&P 500 energy index .SPNY is up 1.3% on the day and leading sector gainers in the benchmark index, and and S&P aerospace and defense index .SPLRCAERO is up 1.8% and strategists are weighing the near-term outlook for the groups.
The S&P 500 .SPX, meanwhile, is flat on the day after paring losses of more than 1% from earlier in the session.
Among defense shares, Lockheed Martin LMT.N is up 1.7%, while shares of Northrup Grumman NOC.N are up 3.6%. In the energy sector, shares of Exxon Mobil XOM.N and Chevron CVX.N are up 0.8% each.
Jack Ablin, founding partner, chief investment strategist at Cresset Capital in Chicago, writes in a note Monday that oil exploration & production companies are likely to benefit from the sustained price strength in oil, followed by gas producers and oilfield services companies.
"Meanwhile, midstream infrastructure and shipping companies face elevated risk and rising insurance costs offsetting revenue increases," he notes.
Ablin notes as well that "history suggests that energy prices tend to peak two weeks after the initial headline and slowly recede."
Separately, Darrell Cronk, CIO for Wealth & Investment Management at Wells Fargo, writes that energy and mining "will have the highest positive correlation to any material rise in oil prices."
He also noted the outperformance of defense company shares, while "transports(airlines), cyclicals(particularly consumer exposed sectors) and emerging markets are likely to have the biggest negative impact from the weekend’s news."
A Morningstar analyst writes in a note that the firm views "trading action in defense stocks on news of armed conflict as only tangentially connected to the fundamentals, which are driven by long-term demand for investment in future military capabilities," and that it believes that "long-term development and resupply of missile defense technology is already baked sufficiently into" its forecasts.
(Caroline Valetkevitch)
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