Oil spike threatens inflation comeback — long defense stocks as safe haven plays
Thesis
Oil prices are spiking due to the breakdown of the Iran ceasefire, and experts warn this will trigger higher inflation, keeping the Federal Reserve hawkish. Simultaneously, defense stocks like Lockheed Martin and Northrop Grumman are already rising as the threat of wider military conflict grows. When oil spikes on military action, defense contractors provide a hedge because they benefit directly from government military spending, which increases during exactly these types of geopolitical crises.
Strategy approach
Build a long-only momentum strategy on LMT and NOC using daily candles. Entry: buy when front-month WTI crude oil futures (CL1) gain >3% in a single session AND LMT or NOC close up >1.5% on the same day. Exit: take profit after a 10-day hold or if oil drops 4% from its entry level. Use a 5% stop loss.