While the conflict between Israel and Palestine is of course still a risk, especially if worries of Iran involvement proves to be more concrete (which we discussed in today and yesterday's Morning Lineups as well as last night's Closer), markets appear to be largely looking past the events. Equities have rallied broadly over the past couple of sessions, but some of the best performers have of course been those stocks whose businesses would be most impacted by the conflict. Yesterday, the S&P 1500 Aerospace & Defense Industry rallied 5.45% on the day. That marks the biggest single-day jump in the group since November 9, 2020, and the 20th best day since 1995.

Amazingly, that single-day gain far surpasses other days when war was front and center in the news. For example, last year when Russia invaded Ukraine, the group only rallied 2.21% on the first day of the invasion (although that invasion was more telegraphed so the group rallied ahead of the news). If you look back to various points of the start of the wars in Iraq and Afghanistan, again, the industry did not see nearly as large of gains. For example, on September 20, 2001, when Bush announced the "War on Terror" the group fell 5.93% on the day, and when the US went into Afghanistan (10/7/2001) and later Iraq (3/19/2003), the group gained 1.8% and 0.8%, respectively. When looking to other daily gains of 5%, predominately those have simply occurred during volatile market periods (i.e. Dot Com Era, Financial Crisis, and COVID Crash) rather than times when news headlines would justify the move.

In the table below, we show each member of the S&P 1500 Aerospace and Defense industry as well as their performance from the broad market high at the end of July through last Friday and performance yesterday. Most of these names fell from the end of July through last Friday, and Hexcel (HXL) was the only one to not rise yesterday. Meanwhile, Northrop Grumman (NOC) was the biggest winner with an 11.43% gain.L3Harris (LHX) was also not far from a double-digit daily gain while Huntington Ingalls Industries (HII), Lockheed Martin (LMT), General Dynamics (GD), and Mercury Systems (MRCY) were all up over 5%.

Below we break down each time the Aerospace and Defense industry has rallied at least 5% in a single day without having done so in the prior three months. As shown, yesterday was not the largest jump of those prior 8 instances. Historically, median performance has been stronger than the norm over the next day to three months out with further gains more often than not.

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