Defense stocks jump as war rages between Israel and Hamas

• Defense sector stocks rose Monday, after war broke out between Israel and Hamas this weekend.
• Northrop Grumman led the sector, with General Dynamics, Lockheed Martin, and RTX also surging.

The explosion in hostilities between Israel and Hamas sent US defense stocks surging on Monday as the war looks to play out for a while and threatens to expand regionally.

The conflict erupted over the weekend when Hamas launched a surprise assault on Israel from the Gaza Strip, sending thousands of rockets across the border and fighters pouring into the country.

Jerusalem responded by declaring war on Hamas on Sunday, and retaliated through its own wide-spread strikes in Gaza. Fighting has already claimed over 1,000 lives, and concern has grown that the conflict could involve other Middle Eastern parties.

In response, a US aircraft carrier and other vessels are headed towards Israel's coast, and Defense Secretary Lloyd Austin III vowed to help Israel meet its defense needs.

According to reports, Israel is expected to seek more Small Diameter Bombs from the US as well as small arms, ammunition, 122 mm rounds, mortars ,and interceptors for the Iron Dome air defense system.

Northrop Grumman led the cohort of defense stocks, soaring as much as 12% on Monday. Meanwhile, General Dynamics jumped 9%, Lockheed Martin gained 8%, and RTX, previously known as Raytheon, rallied 4%.

Overall, markets had a relatively muted reaction to the conflict, with the S&P 500 down only 0.5% Monday morning.

However, leading commentators have warned that any escalation in the war, such as if other Middle Eastern states join in, could trigger more extreme market responses. This is a potential scenario, especially as Iran is reported to have helped plan the Hamas operation.

Defense stocks similarly got a big boost last year, after Russia invaded Ukraine. So far, the US has spent more than $40 billion on military aid for Ukraine.