Defense sector - the beneficiary of fear?

The specter of an armed conflict, often caused by the expansive policies of powers such as Russia, has always been the cause of panic among investors and led to a sell-off on stock exchanges. Armed conflicts have always guaranteed high profits for companies from the defense sector, which provide the technology and equipment necessary for large-scale warfare.

If the markets continue to price in the pessimistic scenario regarding the conflict between Russia and Ukraine, then the share prices of some defense companies may increase. The situation can be compared to the beginning of the coronavirus pandemic when companies from the medical sector or vaccine producers recorded sharp gains. Even if the current crisis is resolved, defense companies may still benefit in the longer term due to the likely increase in defense spending, also in the US.

One of the largest US defense companies is Northrop Grumman (NOC.US), with over 90,000 employees. Northrop has been cooperating with the US Army since World War II, with particular emphasis on the air and space forces. The company is also developing civilian technologies with NASA.

Northrop has such designs as the RQ-4, IFC-4 Triton drones or the flagship B-2 Spirit bomber which uses the 'stealth' technology. The company also services the equipment and develops the latest technologies for the army (including the recently presented SPOC - Software Programmable Open Mission System Compliant).

Northrop Grumman has also recently benefited from several new, lucrative contracts with the US military, such as a five-year deal worth approximately $ 1.4 billion for the production of the Integrated Battle Command System (IBCS). The company is currently negotiating another contract worth $ 700 million.

Recently, other companies from the Aerospace & Defense sector have also recorded solid increases: Lockheed Martin (LMT.US), General Dynamics (GD.US) L3Harris (L3H.US) or Leidos (LDOS.US), Kratos (KTOS.US) or BAE Systems (BA.UK) listed on the London Stock Exchange.

The panic intensified after the information from American intelligence, which stated that an attack on Ukraine may take place even before the end of the Beijing Olympics. According to Western intelligence organizations, Putin would assault Ukraine by February 16. However, if the attack does not occur, then stock markets may erase some of the recent losses. After the intervention by Russia's foreign minister, Sergei Lavrov, Putin announced that he would return to talks and negotiations with the West.

The return of positive sentiment and a possible deal between the West and Putin may certainly be a catalyst for the stock exchanges. In this case, the stock prices of the companies from the defense sector may take a dive. However, in the long term, this sector has a lot of room for growth due to the increase in tensions between the superpowers, and Ukraine itself is not the only country at risk of an armed conflict.

Northrop Grumman (NOC.US) stock has been moving in an upward trend in recent months. On Friday, the upward movement accelerated, which was related to reports of possible aggression by Russia against Ukraine. Currently, the $ 405 zone should be considered as the key resistance. If it is negated, the upward movement may accelerate. Meanwhile, the zone at $ 350 acts as major support, but traders should also focus on the lower limit of the ascending channel. Source: xStation5