Hedging Against War

Unfortunately, war is a part of the human experience. Current events in Gaza and Israel have put pressure on stocks with the US markets sliding aggressively. Good-willed people don’t want to profit from war. However, good-willed people also don’t want to see their portfolios bulldozed by events 1000s of miles away.

During times of war or geopolitical instability, the performance of various sectors and individual stocks can be influenced by a range of factors, including government policies, global economic conditions, and the nature of the conflict.

It’s essential to note that investing during wartime can be highly speculative and risky, and the ethical considerations surrounding such investments should not be ignored. Here are some sectors and stocks that have historically performed relatively well during times of war:

  1. Defense and Aerospace: Defense companies often see increased demand for their products and services during wartime. Stocks of major defense contractors like Lockheed Martin (LMT), Northrop Grumman (NOC), and Raytheon Technologies (RTX) have the potential to perform well during periods of conflict due to increased government defense spending.
  2. Energy and Natural Resources: Energy companies can benefit from higher oil prices during wartime, especially if the conflict disrupts global oil supplies. Major oil companies like ExxonMobil (XOM) and Chevron (CVX) may see stock price increases.
  3. Precious Metals: Precious metals like gold and silver are often considered safe-haven assets during times of war, as investors seek to protect their wealth from economic and geopolitical uncertainty. Stocks of mining companies, such as Barrick Gold (GOLD) and Newmont Corporation (NEM), can benefit from rising precious metal prices.
  4. Cybersecurity: With an increasing reliance on technology and the internet, the demand for cybersecurity services tends to rise during conflicts, as both state and non-state actors may attempt cyberattacks. Companies specializing in cybersecurity, such as Palo Alto Networks (PANW) and CrowdStrike Holdings (CRWD), may experience increased business and stock price gains.
  5. Healthcare: The healthcare sector is considered defensive, as people still require medical services during wartime. Pharmaceutical and healthcare companies, such as Johnson & Johnson (JNJ) and Pfizer (PFE), may remain relatively stable.
  6. Utility Companies: Utility companies, which provide essential services like electricity, water, and gas, are often considered defensive investments. They tend to be less affected by economic fluctuations and may provide stability during times of uncertainty.
  7. Infrastructure and Reconstruction: After a conflict ends, there is typically a need for post-war reconstruction and infrastructure development. Companies involved in construction and infrastructure projects can benefit from government contracts and investments in rebuilding efforts.

It’s important to emphasize that the performance of specific stocks and sectors during wartime can be highly unpredictable. War-related investments can be influenced by various factors, including the nature and duration of the conflict, government policies, and global economic conditions.

Additionally, ethical considerations may deter some investors from profiting from war-related investments. As with any investment, it’s crucial to conduct thorough research and consider your own risk tolerance and ethical principles before making investment decisions during times of war. Consulting with a financial advisor is advisable to navigate the complexities of such investments.

Rich Meyers