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Aerospace & defense stocks and ETFs had very strong performance last year, thanks mainly to rise in defense spending. Also, synchronized global growth benefitted their commercial aerospace businesses. They continue to outperform the broader market this year as well.
A boost in defense budgets in the US and reports of commitment by NATO members to increase military spending have supported these stocks. Defense spending in the US increased by 4.6% annual rate in Q3. Per WSJ, for the six months between April and September, defense spending rose at its fastest pace since 2009.
Global air traffic continues to expand and rising middle class in emerging economies would be a key source of air travel demand going forward. This would continue to support the commercial aerospace businesses.
Many companies in the sector reported better than expected results. Pentagon’s plans to establish a “Space Force” would also benefit these companies.
On the other hand, trade and tariff concerns have weighed on these stocks as these companies have a lot of exposure to international markets.
There are some concerns that widening federal deficit could impact defense spending in the early 2020s. The commercial side of aerospace could see lower profits if oil prices stay elevated as also if the global growth outlook worsens due to an escalation of a trade war.
To learn more about the iShares U.S. Aerospace & Defense ETF (ITA – Free Report), the SPDR S&P Aerospace & Defense ETF (XAR – Free Report) and the PowerShares Aerospace & Defense Portfolio (PPA – Free Report).
