The aerospace and defense industries have long been known for their ability to withstand the ups and downs of the market, but recently they have been showing especially strong performance. Lift Off Aerospace & Defense Stocks, a sector that includes major defense contractors such as Lockheed Martin, Raytheon, Boeing, and Northrop Grumman, have been hitting all-time highs in a multi-year breakout.
The sector has been helped by budget increases, helping military contractors across the board. For example, President Trump’s FY 2018 Defense Budget requested $639 billion in defense spending, an increase of 10 percent from the prior year. As a result, defense stocks have been gaining altitude, with annual gains of 20-30% or more since 2017.
This increase in defense spending has been a boon for aerospace and defense companies. The sector has high fixed costs involved with developing and manufacturing complex systems, meaning they can’t easily cut costs like commercial companies. As a result, when the government either spends more or maintains a constant budget, aerospace and defense companies can become highly profitable.
Fears of rising geopolitical tensions have also had a positive effect on the aerospace and defense sector. With the current trade war with China and a showdown with Iran looming, investors are looking to the sector for safety. Companies that focus on defense have seen a surge of interest from investors, as these companies are likely to benefit from an increase in defense spending as well as the potential for business growth abroad.
The strong performance of the sector has been seen across all major US indices. Both the S&P 500 and the Dow Jones have experienced a lift-off, with the S&P 500 reaching an all-time high of 3,013 in late August of 2019. The NASDAQ, which has a heavier weighting in the sector, has also climbed to a record high.
For those looking to take advantage of the lift-off in aerospace and defense stocks, now is a great time to buy. Companies such as Boeing, Raytheon, and Lockheed Martin provide great opportunities to capitalize on the current defensive environment. There is also potential for sector growth in the emerging subfields such as cyber security and commercial defense. All in all, aerospace and defense stocks are a great way to gain exposure to the current market and position yourself for success in the future.
