What effect will President Barack Obama’s shift of 17,000 more soldiers and Marines to Afghanistan have on the defense industry and its exchange traded funds (ETFs)?
General David McKiernan, the top U.S. commander, has openly stated that in addition to more troops, he needs additional surveillance aircraft and civilian support, which could result in more business for defense contractors.
On the other hand, many analysts suggest that this is merely a shift in spending from one country to another and most soldiers will utilize equipment that they already have, states Donna Borak of the Associated Press. What the industry has in its favor is the difference in terrain, which will force the military to find innovative ways to attack, and perhaps the demand for new airfare.
There’s also skepticism as to whether the troop drawdown in Iraq will really work. Some wonder if the country is still too unstable. If this is the case, defense spending might continue to be elevated.
In any case, these scenarios could mean good things for aircraft manufacturers such as Boeing (BA). Unfortunately, many analysts to believe that the impact the defense industry has on the entire economy is minuscule. However, if you want to grab exposure to this industry take a look at PowerShares Aerospace and Defense (PPA), which is down 24.1% year to date; BA is 7.5%.
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.