Investing.com – A note from Bernstein analysts on Monday expects a boost for defense stocks following Donald Trump’s election victory, citing historical trends and political signals that suggest a continuation of strong defense spending.
Drawing comparisons with his first term, analysts expect higher military budgets despite initial rhetoric surrounding defense spending cuts.
While noting uncertainty surrounding Trump’s Department of Government Efficiency, co-led by Elon Musk and Vivek Ramaswamy, about how it could result in budget cuts that could reduce profits for defense companies and government contractors, the analysts wrote that “Despite the headlines, we have not seen any statements from Elon Musk that suggest major problems for major defense contractors.”
But Musk has recently criticized Lockheed Martin’s F-35 fighter jet program, fueling speculation about possible scrutiny of high-value defense projects.
Analysts pointed to Trump’s first term as a guide, highlighting 2017, when initial talk of budget constraints sparked concern among investors but the administration ultimately presided over the largest procurement budget since 9/11.
Bernstein expects a similar outcome this term, and congressional budget caps are likely to be eased or eliminated to address inflationary pressures and defense priorities.
Analysts also highlighted rising global demand for U.S. defense equipment, as European nations, facing heightened security concerns due to Russia’s invasion of Ukraine, are driving strong export demand for tactical weapons and ammunition.
“We hope that American and European defense companies will continue to benefit from the needs in Europe to address the Russian threat, even if Ukraine is resolved for the time being,” Bernstein said.
Key Cabinet appointments, including Marco Rubio as Secretary of State and Michael Waltz as National Security Advisor, indicate the continuation of a strong defense policy. Analysts anticipate that Trump will prioritize nuclear deterrence, missile defense and space capabilities, benefiting companies such as Northrop Grumman, Lockheed Martin (NYSE:), Raytheon and L3Harris.
While efficiency initiatives may target key programs like shipbuilding, impacting Huntington, and the F-35, impacting Lockheed and Northrop, Bernstein hopes Congress will restore funding for these programs, as it did during the first term. of Trump.
“If we see this again, we could see a slowdown in some areas, such as the F-35 and shipbuilding. But last time, Congress added funding to these programs again.”
In a year that should have been a boom period for the defense sector, with unprecedented demand for weapons from the United States around the world, its shares have underperformed the S&P 500.
Bernstein sees reasons for optimism given the poor results of the past. The combination of growing budgets, strong international demand and an administration that is likely to prioritize defense spending offers a favorable outlook for contractors.
“We are increasingly positive on the outlook for defense stocks,” Bernstein analysts wrote, naming Lockheed Martin, Northrop Grumman and General Dynamics as among the most likely beneficiaries of Trump’s policies. Lockheed Martin (LMT)