Bernstein analysts have forecasted a significant boost for defense stocks following Donald Trump’s anticipated return to office. Their analysis, released Monday, draws on historical trends and recent policy signals, suggesting that defense spending will remain robust under Trump's leadership.
Looking back at his first term, analysts anticipate that the U.S. military budget will continue to rise, despite initial comments about cutting defense spending. This is consistent with previous patterns, where early rhetoric did not align with the final military budget outcome.
While some uncertainty surrounds the Department of Government Efficiency under Trump, especially with Elon Musk and Vivek Ramaswamy taking leadership roles, analysts remain optimistic. Despite Musk’s criticism of the Lockheed Martin F-35 fighter jet program, they point out that there have been no major statements that suggest significant issues for large defense contractors.
In 2017, concerns about budget constraints during Trump's first term led to investor apprehension. However, the administration ultimately oversaw the largest procurement budget since 9/11. Bernstein predicts that similar outcomes are likely this time, as congressional budget caps may be relaxed or removed to accommodate inflationary pressures and defense priorities.
Another key factor is the rising global demand for U.S. defense equipment, particularly in Europe. With Russia’s invasion of Ukraine heightening security concerns, European nations are turning to U.S. manufacturers for tactical weapons and munitions. Bernstein expects this trend to continue, even if the situation in Ukraine stabilizes.
Analysts also point to key cabinet appointments, such as Marco Rubio as Secretary of State and Michael Waltz as National Security Advisor, which signal a continuation of strong defense policies. Trump's focus on nuclear deterrence, missile defense, and space capabilities is expected to benefit major contractors like Northrop Grumman, Lockheed Martin, Raytheon, and L3Harris.
Although Trump’s efficiency initiatives could target programs like shipbuilding—impacting companies like Huntington and Lockheed Martin’s F-35 program—Bernstein believes Congress will ultimately restore funding, as it did during the previous administration.
Despite defense stocks underperforming the S&P 500 in recent years, Bernstein sees positive indicators for the sector. With rising budgets, strong international demand, and a government likely to prioritize defense spending, analysts are optimistic about the future of defense contractors.
“We are cautiously positive about the defense stock outlook,” Bernstein analysts stated, naming Lockheed Martin, Northrop Grumman, and General Dynamics as potential beneficiaries of Trump's policies.
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