Stocks and Bombs

While most stocks declined or treaded water today—the first day of trading since the United States began its overt military action in response to the attacks of Sept. 11—shares in several defense firms climbed. Raytheon, which makes Tomahawk missiles, was up about 4 percent in late afternoon trading. Lockheed Martin, maker of missiles and of the F-16 jet, was up almost 3 percent.

Reasonable? Well, it seems obvious enough that whatever shape the “war on terrorism” ends up taking, it’s likely to result in more business for such firms, not less. On the other hand, the beginning of a bombing campaign in Afghanistan was not exactly a surprise development. Actually, its unsurprisingness is underscored by a quick look at how much the shares of firms like Raytheon and Lockheed Martin had already risen before today.

Lockheed Martin, for example, is now up a remarkable 25 percent since Sept. 10. As for Raytheon, it happens to have hit a 52-week low that day, finishing trading at $23.95 a share, which put its market capitalization at around $8.6 billion. Today it trades at more than $36 a share, and the company is worth $13.1 billion—a leap in value of more than 50 percent.

That’s putting some pretty high expectations on how much the results of these firms will be affected by what so far does not look to be a hardware-intensive military effort. True, both firms have also been cited as likely to benefit from increased demand for “precision” defense technology helpful in intelligence work and the like. But again, this was obviously the case before the actual bombing began yesterday. Before, everyone knew there would be ongoing military action; today, everyone knows there has been a start to that action. So today’s run-ups in these stocks seem like another example of how share prices can react to “news,” even when that news simply confirms what was already widely assumed (and already reflected in the prices of those same shares). Even in wartime, some things don’t change.