The prevailing view among defense investors these days is that talk of budget sequestration is going to weigh down share prices until after the November election, and maybe longer. But a catalyst for re-evaluating sector equities has begun to appear on the horizon: the possibility that Israel will attack Iran’s nuclear complex in the Fall. Any such operation would likely provoke an Iranian response, complete with missile launches, action in the Strait of Hormuz, and spiking oil prices. Bad news for most economic sectors, but not the defense business. In the vernacular of Wall Street, defense stocks are counter-cyclical — they tend to strengthen when the rest of the economy is weakening. A new Middle East war would certainly be no exception, because it would stimulate demand for military goods and services while making near-term implementation of sequestration less likely. So although rising tensions between Israel and Iran are a worrisome development for most observers, they could still prove to be a game-changer for faltering defense equities. I have written a commentary for AOL Defense here.