&imwidth=800&imheight=600&format=webp&quality=medium "Who really benefitted from the Iran war?")
The war in West Asia has likely come to an end, but profits for some have not. Five months after the US and Israel launched "Operation Epic Fury" against Iran, Wall Street and the defence sector are still cashing in. Under Trump 2.0, General Dynamics' stock has surged over 23 per cent. L3-Harris is up 15 per cent, Lockheed Martin has risen 13 per cent.
The new Defence Authorisation bill now calls for $1.15 trillion in military spending, marking the first time the defence outlay projection has surpassed the trillion-dollar mark. Defence firms trade at 22 to 25 times forward earnings, a premium that history rarely supports. The market currently isn't betting on peace, but it is betting on the backlog of military equipment depleted during the war.
Stocks up, wages flat: Wall Street's paradox
Overall, Wall Street benchmarks have been in lock-step with defence stocks. But step back, and the broader economy tells a very different story.
The S&P 500 is up nine per cent this year, but core inflation sits at 2.9 per cent, and headline inflation at 4.2 per cent, well above the Federal Reserve's two per cent target.
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Inflation climbs while markets celebrate
Both those inflation measures are climbing, and not falling, with price pressures above the Fed target for well over 5 years now. The US central bank, under new chair Kevin Warsh, just held rates steady last month, but markets are now pricing a rate hike by October, a sharp reversal from earlier bets on cuts. Warsh has vowed to target inflation and bring it below the target soon.
US unemployment has sat around four per cent for nearly a year, and the reason for the steady reading is that some Americans have stopped looking for a job entirely. The participation rate has fallen significantly, pointing to the weakening jobs market outlook. That's also pointing to a soft landing and an economy decoupling from Wall Street's euphoria.
Who benefited from the 40-day Iran war?
The war itself hit global supply chains hard. The World Food Programme says food insecurity may now touch 363 million people worldwide, driven by the Strait of Hormuz disruption and an energy price shock.
So who really benefited? Defence contractors, certainly. Energy traders, likely. Ordinary Americans facing sticky prices and a Fed that's turned hawkish again - not so much.
With US midterms on November 3, that gap between index charts and grocery bills may be Washington's next real battle.
