A story in The New York Times over the weekend raised the possibility of a new arms race in the Middle East, as increased sectarian fighting and proxy wars in Yemen, Syria, and Iraq create new demand for advanced weapons and weapon systems.
The article pointed out, as others have, that the primary beneficiaries of the increased demand for planes, missile, tanks, and other military hardware will be U.S. military contractors – the Lockheed-Martins, General Atomics, and Boeings of the world. But the expected increase in orders from Middle Eastern countries looking to control jihadist groups like ISIS, and rebel groups such as Yemen’s Houthi tribe, will be more of an extension of a gravy train that’s already rolling than some sort of new start.
Just how well have U.S. defense firms done in the past few years? To put it in context, in the past 24 months, the U.S. stock market has been on a nearly unprecedented tear. Since April of 2013, the Standard & Poor’s 500 index has soared, increasing in value by more than 30 percent.
Compared to a broad index of the defense industry, the S&P 500 looks like a bad investment. Since April of 2013, the Dow Jones U.S. Aerospace and Defense Total Stock Market Index has grown at double the rate of the S&P, increasing in value by 60 percent.
Making the performance of defense firms even more remarkable is the fact that their share prices continued to surge even as the U.S. Budget sequester took hold, slashing the Pentagon’s budget by tens of billions of dollars. In 2014, for example, U.S. military spending fell by 6.5 percent, according to the Stockholm International Peace Research Institute.
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