The defense sector would likely take the brunt of the hit, accounting for half of the budget cuts. About $500 billion in defense spending would be phased out over the next 10 years, with $55 billion immediately cut next year.

In a recent study conducted by National Association of Manufacturers, over 1 million private sector jobs could disappear by 2014 due to the poor fiscal budget. The job loss would translate to a 0.7% rise in unemployment and up to a 1% drop in GDP.

Lockheed Martin (NYSE: LMT) has already warned that the majority of its 100,000 workforce is at risk due to federal budget cuts to defense. Additionally, other defense companies will also likely diminish their workforce in light of the constrained budget.

  • iShares Dow Jones US Aerospace & Defense (NYSEArca: ITA). Top holdings include: United Technologies 8.9%, Boeing 8.2%, Precision Castparts 6.1%, Lockheed Martin 5.9% and raytheon 5.6%
  • PowerShares Aerospace & Defense (NYSEArca: PPA). Top holdings include Boeing 6.0%, United Technologies 5.6%, Honeywell International 5.5%, Lockheed Martin 5.3% and Raytheon 5.1%.

For more information on the defense sector, visit our aerospace & defense category.

Max Chen contributed to this article.