After the economy was punched in the gut, defense spending took a back seat to other pressing matters. Through it all, aerospace and defense exchange traded funds (ETFs) stood tall, but after yesterday’s cuts, will that continue?
On Thursday, the White House ordered the Pentagon to do away with nearly all spending growth for the next five years, according to The New York Times. The total reductions after the five-year period will amount to $78 billion.
Even before the announcement, some defense bears were already speaking out.
The current climate is bad for defense stocks, remarks Rick Whittington for Forbes. Although, defense contractors don’t have all their eggs in the Pentagon’s basket. Military applications do have some spillover that benefit the civilian economy, such as aerial, subsea and terrestrial commercial industries. [Defense ETFs Brace for Spending Cuts.]
Defense spending now only amounts to funding the current wars that the government is waging instead of revamping the aging capital stock.
Investors should note that aerospace and defense companies offer promising dividends that provide growth in bull markets and give investors a cushion in bear markets, writes Selena Maranjian for The Motley Fool.
That said, the current yields on PowerShares Aerospace & Defense (NYSEArca: PPA) and iShares Dow Jones U.S. Aerospace & Defense (NYSEArca: ITA) aren’t all that hot – both are around 1.2%. Their performance, on the other hand, has been pretty nice over the short- and long-term and both are about 9% above their long-term trend lines.
For more information on the aerospace & defense industries, visit our aerospace & defense category.
Max Chen contributed to this article.