One industry in the United States that has almost always been independent of normal market forces is the defense sector. The U. S. is the biggest defense spender in the world. The government has continued to sanction hundreds of billions of dollars in defense spending over the years. This has been irrespective of the economic situation.
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Even though the air strikes in Iran were eventually aborted, investors in the country are still bullish on defense stocks. The devil is obviously in the details. It can be seen from the 30% surge in the SPDR Aerospace & Defense Exchange Traded Fund (XAR) in 2019 so far. During the same period, the Utilities Select Sector SDPR Fund (XLU) has grown at half that rate.
Major Defense Stocks To Watch
In addition to that, the exchange-traded funds in the defense and aerospace sector have left utility ETFs in the dust. After the selloff at the end of 2018, defense stocks are now making a big comeback. The biggest gainers in the defense sector during this upsurge include:
- Liberty Defense (SCAN.V)
- Patriot One (PAT.TO)
- Northrop Grumman (NOC)
- Lockheed Martin (LMT)
- Kratos Defense & Security Solutions Inc (KTOS)
- Axon Enterprise (AAXN)
Defense Stocks Rise As Spending Jumps
In addition to the steady US spending on defense, it’s important to note a few things. For one, the sector has received a major boost in the form of a much bigger budget for defense spending. Towards the end of May, the National Defense Authorization Act for 2020 was voted to advance by the Senate Armed Services Committee. This is a significant development.
The act specifies $750 billion in defense spending. If it is turned into law, it could be a big benefit to the sector. This has resulted in the surge in the ETFs, despite the fact that one of the biggest constituents of such funds, Boeing (BA) has been in turmoil. This was due to the troubles with one of its highest earning commercial planes.
Over the past five years, the biggest defense contractors have grown steadily and generated returns of an average of 17% during the period. During the same period, the Dow Jones Industrial Average generated returns of 13%. It’s a sector that’s likely to continue growing irrespective of external factors. Because of this, it could be an important sector to watch in 2019.
