Recession expectations continue to percolate in the capital markets, making investors wonder where safe haven sectors can exist to protect their capital. From a trader’s standpoint, identifying these sectors could provide gains — one of them being the aerospace and defense sector.
The sector looks primed to withstand a recession as inflation fears have morphed into fears of lower economic growth amid rising consumer prices. As such, the Federal Reserve is adopting an aggressive stance to raise interest rates, possibly to the detriment of economic growth.
While safe haven sectors like utilities could provide a shelter for capital, another to consider is aerospace and defense. Geopolitical concerns, such as Russia’s invasion of Ukraine, continue to be a primary concern whether a recession hits or not.
“National defense is detached from the economic cycle,” a MoneyWise article noted. “The government can afford to cut the defense budget during peacetime, but not during an active war. Russia’s invasion of Ukraine and rising tensions in the Taiwan Strait have compelled the U.S. congress to expand the defense budget this year.”
Strong Demand and Rising Spending
Additionally, there are sector-specific tailwinds for aerospace and defense. Strong aircraft demand and a government willing to open its pocketbook give the sector an additional boost.
“Factors unique to aerospace and defense – including strong demand for new passenger aircraft and surging military spending – should keep those industries humming through tough economic times, argues Alex Krutz,” a FlightGlobal article said. “It might be assumed that the US and European aerospace and defense (A&D) industries will, like other sectors, suffer amid economic downturns in the USA or Europe.”
Given these catalysts, traders can look to funds like the Direxion Daily Aerospace & Defense 3X Shares ETF (DFEN). DFEN seeks daily investment results equal to 300% of the daily performance of the Dow Jones U.S. Select Aerospace & Defense Index, which attempts to measure the performance of the aerospace and defense industry in the U.S. equity market.
Like the rest of Direxion’s roster of leveraged ETFs, DFEN gives traders the ability to:
- Magnify short-term perspective with daily 3X leverage;
- Go where there’s an opportunity, with bull and bear funds for both sides of the trade; and
- Stay agile — with liquidity to trade through a rapidly changing market.
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