After strengthening on what many believed would be a more hawkish administration ahead, aerospace and defense sector exchange traded funds are under attack, with President-elect Donald Trump taking aim at Pentagon’s high expenditures.
On Monday, the iShares U.S. Aerospace & Defense ETF (NYSEArca: ITA) fell 1.3%, PowerShares Aerospace & Defense Portfolio (NYSEArca: PPA) dropped 1.3% and SPDR S&P Aerospace & Defense ETF (NYSEArca: XAR) retreated 1.4%.
Defense stocks were limping after Trump censured the rising weapons spending, specifically targeting Lockheed Martin Corp.’s F-35 Fighter jet program, the Pentagon’s most expensive weapons system, Bloomberg reports.
“The F-35 program and cost is out of control,” Trump tweeted Monday. “Billions of dollars can and will be saved on military (and other) purchases after January 20th,” referring to inauguration day.
The F-35 is Lockheed’s largest source of revenue, making up 20% of sales.
Lockheed Martin (NYSE: LMT) declined 2.7% Monday in response to the tweet. LMT makes up 7.5% of ITA’s portfolio, 6.5% of PPA and 4.3% of XAR.
The aerospace and defense industry initially rallied off the back of a Donald Trump election win after the President-elect called for a larger armed force and greater fleets of combat ships and fighter jets.
The momentum, though, took a turn after Trump’s tweet and another post where he linked a Washington Post article on $125 billion in administrative waste hidden by the Pentagon.
Nevertheless, industry experts argued that costs are coming down. The F-35 program’s total estimated cost last year was lowered by $12.1 billion to $379 billion after a $7.5 billion reduction the year prior to $391.1 billion from $398.6 billion.
Moreover, Trump has criticized the “revolving door” nature of the industry as many who negotiated the deals between the government and firms often end up working for the industry down the line.
“The people that are making these deals for the government, they should never be allowed to go to work for these companies. You know, they make a deal like that and then a year later, or two years later, or three years later you see them working for these big companies that made the deal,” Trump told Fox News Sunday, arguing that there should be a “lifetime restriction” of top defense officials going to work for defense contractors.
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