Why Defense and Energy Stocks Are Both in the Spotlight Right Now
Why Defense and Energy Stocks Are Both in the Spotlight Right Now

Why Defense and Energy Stocks Are Both in the Spotlight Right Now

Thu, Jul 30, 2026 10:34 AM

Why Defense and Energy Stocks Are Both in the Spotlight Right Now

If your investing feed has looked a little more militarized, you're not imagining it. In late July, the U.S. approved its biggest defense budget in history. Around the same time, oil markets have been on edge over a conflict zone that controls a fifth of the world's crude supply. Two very different stories — but they're moving markets in the same direction, and here's why that matters even if you've never bought a defense stock in your life.

The story: Governments don't ramp up spending like this often

On 22 July, the U.S. House approved a USD1.15 trillion defense budget — one of the largest in the country's history. About USD40 billion of it is earmarked for nuclear programs, with a further USD10 billion-plus for other military priorities.

Why it matters: when a government commits to spending at this scale, it isn't a one-off cheque. Contracts like this typically lock in years of orders for the companies that build aircraft, missiles, ships and defense technology behind them. That's why investors pay attention — not because of the headline number, but because of what tends to follow: multi-year revenue visibility for an entire industry.

Beginner's Corner A defense contractor is a private company that builds military equipment for the government rather than the government building itself. When defense budgets rise, these companies are often the ones winning new contracts.

Once you understand why this spending cycle matters, the companies listed below certainly seem to make a lot more sense:

  • Lockheed Martin builds the F-35 fighter jet and missile-defense systems like THAAD — equipment that benefits directly from expanded military budgets.
  • RTX (via Raytheon) makes the Patriot air-defense system and Tomahawk missiles, both in active demand amid current global tensions.
  • Northrop Grumman builds the B-2 stealth bomber and supplies radar and space-defense technology.
  • Boeing's defense unit produces aircraft like the F-15 and P-8 Poseidon.
  • Huntington Ingalls is the largest shipbuilder for the US military, behind aircraft carriers and submarines.
  • L3Harris supplies communications and electronic-warfare systems that tie military platforms together.
  • Palantir builds AI software that helps defense agencies analyse data, rather than physical hardware.
  • AeroVironment makes tactical drones, a fast-growing category in modern conflict.

The other story: why oil traders are nervous

The ongoing U.S.-Iran conflict has also put a spotlight on the Strait of Hormuz.

Market Jargon Explained — The Strait of Hormuz A narrow shipping channel between Iran and Oman that roughly 20% of the world's oil passes through daily. Any threat to this route makes oil traders nervous, because even a small disruption to a fifth of global supply can push prices up meaningfully.

Why it matters: when oil prices rise, energy companies typically earn more for every barrel they produce, without their costs rising at the same pace. That usually means fatter profit margins, more cash for dividends, and bigger share buybacks. That's the mechanism behind why energy stocks often perform well during periods of geopolitical tension.

Companies investors have been looking into in this segment include:

  • Cheniere Energy, the largest U.S. exporter of liquefied natural gas (LNG), positioned to benefit as countries seek more secure energy supplies.
  • Diamondback Energy, a major oil producer in Texas's Permian Basin, is known for its strong cash flow.
  • Chevron and Exxon Mobil, two of the world's largest integrated energy companies with broad exposure across oil and gas.
  • ConocoPhillips, Kinder Morgan, and Occidental Petroleum, each offering a different angle — from efficient production to energy infrastructure.
"With defense spending set to remain elevated and geopolitical risks showing little sign of easing, we continue to favour Lockheed Martin (LMT), RTX (RTX), Palantir (PLTR), Cheniere Energy (LNG), Diamondback Energy (FANG), Chevron (CVX), and Exxon Mobil (XOM) as key beneficiaries of this evolving geopolitical landscape." — Kenny Yee, Head of Research

So what does this mean for you?

You don't need to pick a side between defense and energy to understand this moment — both sectors are reacting to the same undercurrent of global tension.

If you want exposure to either trend, Rakuten Trade's fractional shares let you start with any amount, so you don't need a full share price to take a position and learn how these sectors move.

This article, including the analyst's commentary above, is for educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Always do your own research or consult a licensed advisor before making investment decisions.