Is it a good time for investors to get defensive, especially while reviewing their stock and exchange traded fund (ETF) portfolios? The Goldman Sachs economic team is projecting a slowing of real GDP growth to 1.9% in 2008, with the Fed projecting real GDP growth of about 2.8% in 2009 and close to 2.7% in 2010, reports Richard Safran and Noah Poponak for Barron’s. This takes the defense sector view from neutral to attractive.

Economic cycles tend not to touch the defense sector as revenues are driven by the government and Department of Defense, not the consumer. This can be a safe place for investors to go when the economic growth slows or turns negative. Since 1976, defense stocks have outperformed the S&P 500 by about 21% in a presidential election year. Relative performance of the defense stocks doesn’t seem to change depending upon which political party is in control of the White House.

These ETFs represent the defense sector:

  • iShares Dow Jones US Aerospace and Defense (ITA) up 30.5% year-to-date
  • PowerShares Aerospace and Defense (PPA) up 25.2% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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