The Trump presidency has been a major boon for the aerospace and defense industry, as can be seen from the industry’s stock market performance. Since the November 2016 election, stocks in the Zacks Aerospace & Defense sector rose +61.8%, handily outperforming the S&P 500 index’s +26.8% gain in the same time period. While the easy gains in the space have likely been made already, one can reasonably expect the overall trend to remain favorable.
The factors helping the group’s positive momentum to remain in place include the latest budget proposals from the Pentagon. The recent cabinet reshuffle that has brought in personalities perceived to be more hawkish has further improved the outlook for this space. Increased defense spending by other nations, particularly emerging markets, and greater awareness of cyber security vulnerabilities worldwide should continue to support the group.
Many of the Aerospace majors in the nation are doing a decent job, propelled by the following strategies:
Recent Upside in Budget
On Feb 12, 2018, Pentagon unveiled the fiscal 2019 (FY 2019) budget proposal outlined by President Trump, intended to strengthen the country’s military capabilities. Notably, the budget proposal aims at spending $716 billion on national security.
Of the total, $686.1 billion is being kept as funding for the Pentagon, reflecting 5% real growth over the initial FY 2018 President’s budget and 10% real growth over the current Continuing Resolution (CR). The budget includes $617.1 billion as base budget, highlighting a 17.8% increase from the 2018 current CR level and $69 billion for Overseas Contingency Operations.
Notably, the fiscal 2019 budget raises the end strength for the Army, Navy and Air Force by 25,900 over the fiscal 2018 budget. The latest budget’s major war fighting investments include spending plans of $21.7 billion on aircraft, $18.3 billion on shipbuilding and $5.8 billion on ground systems. No doubt, once approved by the U.S. Senate, this budget will lead to greater revenue growth for aerospace and defense stocks.
U.S. Leads Global Defense Exports
As the United States is the largest supplier of defense equipment, it is undoubtedly a golden era for Aerospace & Defense stocks. U.S. defense majors are expanding their foreign markets rapidly, taking advantage of regional tensions prevailing in the Middle East.
