Early in 2023, Russia's war with Ukraine was the primary geopolitical conflict affecting defense stocks. But for many investors, that wasn't enough to stir broad movement in defense stocks.
However, as investors are now aware, Israel is at war with Hamas. As of this writing, it's not clear whether this will draw the United States into a broader conflict in the Middle East. Even if our military does not get directly involved, the U.S. is now being asked to provide weapons and systems for two countries.
The proposed U.S. defense budget in 2024 is $842 billion. There was talk of cutting the defense budget as part of the budget showdown earlier in 2023. With many flashpoints now in play, it's unlikely the budget will be cut and may, in fact, wind up growing.
That scenario will be bullish for revenue and earnings for defense stocks. And since earnings are a solid predictor of stock price growth, investors can have confidence that the stocks of these companies have room to move higher.
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