Well, it’s starting to play out the way I said it would ...

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Last night, in an article entitled: Oil, Volatility, and Risk: That’s Tomorrow’s Setup, I wrote:

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If oil spikes but stabilizes and equities dip but find buyers, that tells you traders believe the situation is containable. If oil keeps ripping and stocks keep sliding into the close, that suggests the market is pricing extended instability.  As of right now, I expect to see the latter. 

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As of this writing, oil is up around 8%.  And given the continued attacks throughout the Middle East, I see no sign of this letting up in the near term.

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Oil companies seeing a rally this morning include:

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  • Exxon Mobil (NYSE: XOM)
  • Chevron (NYSE: CVX)
  • APA Corporation (NASDAQ: APA)
  • Occidental Petroleum (NYSE: OXY)
  • Diamondback Energy (NASDAQ: FANG)

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Most of the focus today will be on oil, but also pay close attention to RTX Corporation (NYSE: RTX).

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You see, the U.S. military used a large number of Tomahawk cruise missiles in its recent strikes on Iran, burning through a significant portion of its limited Tomahawk stockpile in the process. 

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Analysts and defense experts are now saying this raises concerns about munition readiness, especially if the U.S. were to face a future higher-intensity conflict where long-range precision missiles would be crucial. 

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U.S. production of Tomahawks is currently modest, and even planned increases may take time to replenish stocks at the pace they’re being consumed in recent operations. 

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This is where RTX comes into focus for Wall Street.

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RTX is the manufacturer of the Tomahawk missile, and the Pentagon has already agreed to ramp up production, with plans to produce over 1,000 missiles a year under a multi-year agreement. That’s a material increase from earlier procurement levels.

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What’s happening now in the Middle East reinforces the broader geopolitical environment where the U.S., and likely its allies, view robust inventories of precision munitions as critical. That dynamic is already benefiting defense stocks: RTX shares jumped in pre-market trading as investors priced in increased procurement and replenishment spending.

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This is the “elevated defense spending” narrative that’s driving RTX’s stock price higher this morning. 

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RTX is now trading at a record high.  And if this war continues to drag out, which I believe it will, RTX is going higher.

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Indeed, I get no joy from writing about war in the Middle East.  But my job is not to share my feelings with you.  My job is simply to point out opportunities that could benefit your portfolio.  Being materially objective in times like these is not easy, but it’s necessary.

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No matter how you slice it, markets are amoral pricing machines that rapidly reflect where economic advantage is shifting.  And as investors, that’s what we must focus on.

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Invest accordingly. 

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