Why defense stocks may keep moving higher following initial gains on the Israel-Hamas war

Wall Street analysts expect defense stocks will continue to move higher as a result of the outbreak of the Israel-Hamas war making it less likely Congress will delay or curb the nation's defense budget. Defense stocks have underperformed as a group this year amid concerns that partisan divisions in Washington point to lower military spending. For example, the iShares U.S. Aerospace & Defense ETF is down more than 6% in the past three months, even after climbing 4.

Elsewhere, Citi analyst Jason Gursky said Monday that "the potential for near-peer conflict is likely to accelerate military modernization as the U.S. invests in the tools of deterrence." To be sure, some analysts disagree, though they appear to be in the minority. Notably, Bernstein analyst Douglas Harned doesn't expect the Israel-Hamas conflict will change the path of U.S. defense spending.

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