The successful meeting between Donald Trump and Kim Jong Un was one of the biggest news stories in the world in the past weeks. This meeting had a lot of impact on the defense stocks in the US. The talks of peace saw the stocks of defense contractors going down suddenly.
Some big names include Raytheon which saw a 2.8% decrease in stocks. Lockheed Martin also fell by 1.3%. Northrop Grumman saw a decline of 1.5%. General Dynamics, the navy shipbuilder fell 1.6% and even Boeing saw a decrease in its stock, even though it was just 0.1%.
According to Brad McMillan, chief investment officer for Commonwealth Financial Network in Waltham, MA, any political or diplomatic developments that lower the chances of conflict results in a loss of interest of the investors in defense-focused companies.
“If weapons are used they need to be replaced,” says McMillan. “That makes war a growth story for these stocks, and one of the big potential growth stories recently has been North Korea. What the agreement does, at least for a while, is take military conflict off the table.”
Gary Kaltbaum, president of Kaltbaum Capital Management believes that the stocks may have come down for now but the investors should not be worried in the long run as there will always be enough money to keep producing the weapons and defense systems. “Funding,” he says, will be “plentiful for years to come.”
A new $1.3 trillion spending bill was signed by Donald Trump in March and it includes a $160 boost in the defense budget. The improving relations between the USA and North Korea will not mean a lower defense budget as noted by Bloomberg Intelligence aerospace analyst George Ferguson.
“If North Korea turns from a pariah state to being welcomed in the world community,” Ferguson wrote in a recent report, “there are still enough trouble spots that require strong defense spending, supporting revenue and profit growth at prime defense contractors.”
US defense companies get a large share of their business from the Pentagon and the US government and the peace talks between two nations have not been too good for the defense stocks. You can check out the video of what Trump had to say about it here.
