Red Cat falls 6.9% as Iran peace hopes and SpaceX IPO pressure defense stocks

Defense stocks diverged from a broader market rally as investors priced in an end to the Iran war and rotated capital into SpaceX's record debut.

The S&P 500 rose 0.5% to 7,431.46 on Friday, while Red Cat Holdings tumbled 6.9% as investors bet an Iran peace deal could reduce demand for defense technology. The Dow Jones Industrial Average climbed 353 points, or 0.7%, to 51,202.26, and the Nasdaq Composite added 0.3% to 25,888.84.

"The market is pricing in a geopolitical resolution that would remove a key demand driver for defense contractors," said José Torres, senior economist at Interactive Brokers. "Taken together, robust speculative enthusiasms paired with a fed funds curve that is turning incrementally dovish have put equities in a good position to keep luring buyers."

Brent crude fell 3.4% to $87.33 a barrel, its lowest level since early March, after President Donald Trump called off planned strikes on Iran and signaled a peace deal could be imminent. The yield on the 10-year Treasury rose three basis points to 4.48%, regaining some ground after Thursday's sharp slide. A reopening of the Strait of Hormuz, which handles about a fifth of the world's oil, would ease supply constraints that have pushed energy prices higher since the conflict began.

For Red Cat, which is still up 41% year to date, the twin pressures of a potential peace deal and capital rotation into SpaceX's record IPO could persist if the debut draws sustained demand away from smaller defense names. The drone maker's decline came despite no company-specific negative news, reflecting a sector-wide repricing.

SpaceX shares surged 19.2% in their first day of trading, closing at $160.95 and giving Elon Musk's rocket company a market capitalization of about $2.11 trillion. The IPO raised $75 billion, the largest in history, and drew significant investor demand that pulled capital from other growth-dependent names, including next-generation defense and space technology stocks. CoreWeave, an AI infrastructure company, jumped 5% after learning it will join the Nasdaq 100 index later this month.

The broader market's advance was broad-based, with all three major indices posting gains for the week. The S&P 500 rose 0.6% for the week, while the Dow and Nasdaq each gained 0.7%. International markets also rallied, with South Korea's Kospi jumping 4.6% and Japan's Nikkei 225 rising 2.8%. France's CAC 40 climbed 1.8%.

The University of Michigan's consumer sentiment index rose to 48.9 in June from 44.8 in May, as falling gasoline prices provided some relief. Year-ahead inflation expectations slipped to 4.6% from 4.8%, while long-run expectations fell to 3.4% from 3.9%. "Ten-year inflation expectations dropped over 5 percentage points as consumers expect the spike in prices to moderate after the Iran conflict clears," said Jeffrey Roach, chief economist at LPL Financial.

The path to an Iran deal remained uncertain. Trump on Friday criticized Iran's characterization of the negotiations, saying on Truth Social that the terms Iran leaked "bear no relation to the truth." But Iran's foreign minister said a memorandum of understanding had "never been closer," and Pakistan's Prime Minister Shehbaz Sharif confirmed that a final agreed-upon text had been reached. "Peace has never been this close as it is now," Sharif said.

This article is for informational purposes only and does not constitute investment advice.