Whenever the world experiences geopolitical events, the general market tends to react poorly; investors do not like uncertainty within the economy. However, whenever these issues arise, some tickers and sectors show relative strength.

 

The heartbreaking geopolitical conflict occurring between Russia and Ukraine has brought extreme fear and uncertainty into global markets. Over the last few weeks, the markets have reacted negatively to this news. 

 

Let’s take a look into how the market reacts to geopolitical events and identify a few names that are currently displaying relative strength. 

 

Defense names have been showing relative strength within the market in the last few weeks due to the current geopolitical event affecting the world. Relative Strength focuses on stocks or other assets that have performed well relative to the market as a whole or a relevant benchmark.

 

Investors attempt to capture the most value as possible out of these assets during these times and ride the trend.

 

Investors also use relative strength as a form of hedging. If investors believe that a geopolitical event will drastically affect markets, they flock to names that benefit from these uneasy times and potentially offset the drawdowns in their other positions. 

 

Northrop Grumman (NOC Quick QuoteNOC - Free Report) is a well-known name within defense operations. Currently, this global security company supplies a broad array of products and services to the U.S. Department of Defense (DoD) including electronic systems, information technology, aircraft, space technology, and systems integration services.

 

Recently, NOC has been showing relative strength due to the current geopolitical event underway. Investors have been speculating that the conflict between Ukraine and Russia will have severe effects and have taken a calculated risk that defense names could see an increase in value. 

 

Month-to-date, Northrop has increased by nearly 18% in value. The SPDR S&P 500 ETF Trust (SPY Quick QuoteSPY - Free Report) , a benchmark for the market, has seen nearly a 3% decrease in share price month-to-date. When comparing the monthly performances between the two, investors see the relative strength that NOC has displayed. 

 

Northrop Grumman is currently a Zacks Rank #3 (Hold). Its expected EPS growth rate over the next three to five years is 6.2%. and in its last earnings report, NOC beat bottom-line expectations by 0.84%. Its average earnings surprise over the last four quarters is 11.05%.

 

Lockheed Martin (LMT Quick QuoteLMT - Free Report) has followed the same path as NOC over the last month and has displayed relative strength as well. Lockheed is the largest defense contractor in the world, and its main areas of focus are in defense, space, intelligence, homeland security, and information technology including cyber security. 

 

Similar to NOC, Lockheed is displaying relative strength brought forward by the current uneasiness in Europe.  Month-to-date, the company has seen nearly a 10% increase in their share price compared to the SPY’s performance of -3%. 

 

Lockheed is currently a Zacks Rank #3 (Hold). Over the next three to five years, its earnings are forecasted to grow by 3.6%. LMT had a 0.14% positive earnings surprise in their last report and the company’s average surprise has been 63.32% over the last four quarters.

 

These two names have been excellent representations of relative strength within the market over the last month, and investors will likely continue to try and capture this trend. Geopolitical events tend to always affect the market negatively except for a few names that are directly involved.

 

Throughout history, there have been many geopolitical events that have affected the market. Some of these events have brought much higher turbulence within the markets than others have, however.

 

Investors have been able to calculate an average drawdown and an average time of recovery following the geopolitical event. The S&P 500 declines 5% on average, and the average number of days the index takes to recover its losses is 47. 

 

Now, these are just averages, and each geopolitical event is entirely different from another. However, these averages give us a general feel for how the overall market reacts to these uncertain times. 

 

As mentioned before, the market has witnessed turbulence over the last month caused by the geopolitical issue between Russia and Ukraine. Major indexes are red for the month and could continue this way for some time. 

 

However, markets tend to bounce back very quickly following one of these events and there are always names within the market that will show relative strength during these times. This is caused by investor speculation that names directly involved in these events will benefit. 

 

Two stocks that have displayed relative strength are Northrop Grumman and Lockheed Martin. Due to them being stand-out names in defense operations, they have seen a rather nice increase in share value while the general market has declined. 

Geopolitical events always bring about relative strength. Investors need to realize and understand these trends to fully maximize their gains within the market.