The stock market is rarely about today. It's about tomorrow.
The latest example of that truism is recent trading in shares of energy, defense, and chemical companies.
Since fighting broke out in Iran on Feb. 28, the iShares Aerospace & Defense ETF is down 6%, despite the U.S. military spending almost $1 billion a day, pounding Iran with advanced missiles that will need to be replaced.
That seems to be a boon to defense contractors. But the Iran war is a culmination of rising geopolitical tensions and, in the long run, probably won't do much to change the overall trend in defense spending.
To be sure, the trend has been positive, with spending rising in the U.S. and Europe. That, more than anything, has benefited defense stocks. Before the conflict started, the iShares ETF was up 60% over the past 12 months. Shares of Northrop Grumman, for example, were up 57%, leaving the stock trading for about 26 times earnings estimated for the coming 12 months, up from 17 times a year ago.
(Higher PE ratios are a sign that investors believe in accelerating earnings growth.)
There is, however, a small chance that the Iran conflict ends up hurting defense contractors. "All else being equal, an outcome in the current war that severely degrades or eliminates an Iranian military threat could result in downward revisions to force and weapons requirements," wrote Capital Alpha Partners analyst Byron Callan in a recent note.
A de-escalation of tensions down the road is something defense investors will have to consider.
The fighting isn't over, and Iran has managed to stop shipping through the Hormuz Strait, sending benchmark oil prices up more than 40% to over $100 a barrel.
The iShares U.S. Energy ETF, however, is up only about 3% since the fighting started. Exxon Mobil stock is up about 2%.
Investors just aren't convinced, yet, that current energy prices will remain in place for the long term. Oil futures for 2028 have risen about $6 a barrel, or 10%, since the end of February.
Of course, the conflict will have long-term impacts. Shares of commodity chemical makers LyondellBasell and Dow, Inc. are up 26% and 19%, respectively, since the conflict began. The pair has been upgraded 12 times by Wall Street analysts over that span.
The war has taken low-cost commodity chemical capacity offline now and threatens the region's ability bring more low-cost capacity online in the future. Fermium Research analyst Frank Mitsch met with Lyondell on Feb. 25 and described the meeting as "dour." He met with them again on Mar. 3, and "the atmosphere was a 180-degree turn. The change in tenor from last week to this was palpable."
The strength of the reaction also reflects how beaten up Dow and Lyondell stocks were. Both companies cut their dividends recently amid a brutal industry downturn that slashed profitability by more than 90% between 2022 and 2025.
Dow and Lyondell shares both traded at roughly 5 or 6 times earnings estimates in 2022. Investors knew those good times wouldn't last forever in a cyclical commodity industry.
Looking ahead, Adrian Helfert, CIO of Multi Asset Strategies at Westwood, believes oil services will be an area to watch following the conflict. Infrastructure will need to be rebuilt in the Middle East and in Venezuela, he says.
That thinking hasn't yet shown up in the stocks. The iShares U.S. Oil Equipment & Services ETF is down 8% since the start of fighting. Halliburton shares are down 6%.
Maybe that's an area investors can focus on in the coming months, as they watch the current conflict unfold.
Of course, investors should pay attention to current events, but the key question will always be, how does it impact the future?
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