Why Lockheed Martin Stock Dropped Today
Key Points
The U.S. and Iran have signed a peace deal to end the Iran war.
An end to hostilities will reduce demand for new weapons from Lockheed Martin.
Demand from restocking weapons already used could still lift Lockheed Martin stock.
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Lockheed Martin (NYSE: LMT) stock fell 4.2% through 11:30 a.m. ET Thursday -- and it's no mystery why.
President Trump announced yesterday that the U.S. and Iran have signed an "interim agreement" to end their conflict. While it may be hard to answer the age-old question "war, huh, what is it good for?," investors today seem to think ending the Iran war will be bad news for Lockheed Martin stock.
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Image source: Lockheed Martin.
Details on the agreement
Details are in flux, and the interim agreement may not resolve much, as it merely starts a 60-day period of more intense negotiations surrounding the status of the Strait of Hormuz and the fate of Iran's nuclear weapons program. Still, the broad outlines look like this:
- The U.S. naval blockade on Iran will end.
- Iran may resume foreign sales of oil.
- Other countries' ships have 60 days' free passage through the Strait of Hormuz.
- S. sanctions on Iran will lift.
- Previously frozen Iranian bank accounts will unfreeze.
- And Iran will set up a $300 billion reconstruction fund.
Not much of this is immediately relevant to Lockheed Martin stock, but knowing the details is important for context, so investors can gauge the chances that both sides will believe they're getting enough out of this peace deal for it to hold together permanently.
What this means for Lockheed Martin stock
So, how is the peace deal relevant to Lockheed investors? Well, if peace holds and fighting doesn't resume, this might depress demand for new weapons from Lockheed. There is still the matter of replacing other weapons already used and restocking U.S. arsenals, however, and this is already yielding billions of dollars in sales for Lockheed.
If you ask me, this peace deal won't be as bad news for Lockheed as investors seem to think.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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