Defense stocks rose broadly Tuesday as tension between North Korea and the West mounted. Investors also loaded up on these names after a blockbuster merger deal.
North Korea successfully tested a hydrogen bomb that can be mounted onto an intercontinental ballistic missile on Sunday, marking its sixth — and biggest — test since 2006.
The test was condemned by the international community and also sent jitters through global financial markets.
Defense stocks also received a boost from the Rockwell Collins-United Technologies deal. On Monday, the two companies said Rockwell would be bought by United Technologies for $30 billion, including debt.
"It is possible that the acquisition of COL is the first step in separating UTX into two entities: a Commercial Operation and a Defense and Aerospace Group," Howard Rubel, equity analyst at Jefferies, said in a note last week as speculation about a deal being struck by the two companies increased.
"There may be a bit of value that could be unlocked under that scenario, but the time to close the deal and the disruption associated with it detracts from long-term value-creation driven by improving existing operations," Rubel said.
Rockwell Collins shares rose about 1 percent. United Technologies' stock fell more than 4 percent, and was one of the biggest drags on the Dow Jones industrial average on Tuesday.
Defense shares have been among the best-performing stocks under President Donald Trump. Lockheed and Raytheon shares are up more than 20 percent this year, whole Northrop's stock has risen more than 15 percent.