Budget cuts have affected defense spending, leaving only funds for current wars and not on revamping an aging arsenal.  With these cuts and current geopolitical events, what exactly could this mean for defense contracts and related exchange traded funds (ETFs)?

After the Cold War, U.S. military was used in humanitarian military interventions.  But since the war in Iraq, some have had a shift in thinking, reports The Economist.  The latest conflict in the Middle East and North Africa, has certainly brought back the focus on humanitarian intervention – is it with military might or diplomatic discussions?

Last week, the United Nations passed a no-fly zone resolution and the Libyan military called a cease-fire.  Allied forces pounded Libyan convoys near Benghazi and, according to U.S. officials, significantly degraded the regime’s air defenses. U.S. Defense Secretary Robert Gates said there are other options to assist opposition fighters beyond arming them, including pressuring the government with political and economic sanctions, reports CNN wire staff.

Is promoting democracy diplomatically instead of with military strength healthy for the defense contracts and companies such as Boeing (NYSE: BA)?  Military applications do have some spillover that benefit the civilian economy, such as aerial, subsea and terrestrial commercial industries.  [Boeing Deal Lifts Aerospace and Defense ETFs.]  Obama plans to cut defense spending by $78 billion over the next five years, which means the Pentagon’s budget  is down to zero real growth.

If we don’t use our defense then what will become of the Aerospace & Defense ETFs:

  • iShares Dow Jones U.S. Aerospace & Defense (NYSEArca: ITA) – up 3.3% the past 5 days
  • PowerShares Aerospace & Defense (NYSEArca: PPA) – up 3.2% the past 5 days

Tisha Guerrero contributed to this article.

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.