Aerospace and defense exchange-traded funds (ETFs) couldn’t protect themselves from the volatility of the broad market as all four were in the red despite positive third-quarter earnings results from Lockheed Martin (etftrends.com/quote/LMT). The Dow Jones Industrial Average was down by more than 500 points before rallying to settle for a loss of 125 points.
The iShares U.S. Aerospace & Defense ETF (Cboe: ITA) fell 0.72%, PowerShares Aerospace & Defense Portfolio (NYSEArca: PPA) slid 0.54%, SPDR S&P Aerospace & Defense ETF (NYSEArca: XAR) fell 0.81%, and the Direxion Dly Aerospace&Def Bl 3X ShsETF (NYSEArca: DFEN) dropped 1.65%.
DFEN, in particular, 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 of the U.S. equity market. DFEN has been leveraging the strength in the industry thus far this year and the results show with a 41.12% gain year-to-date.
Lockheed Martin was down 1.24% at the closing bell despite raising its forecast for 2018 to about $17.50 a share, which is higher than its original forecast of $16.75 to $17.05 a share. Lockheed Martin is also expecting revenue to rise by 5% in 2019.
“The preliminary outlook for 2019 assumes the U.S. Government continues to support and fund the corporation’s key programs,” Lockheed Martin said.
Lockheed Martin’s earnings per share came in 83 cents higher than analyst expectations with adjusted third-quarter earnings of $5.14 a share. The firm’s revenue of $14.32 billion also exceeded expectations–16% more than the $12.34 billion reported the previous year.
“Our team achieved another quarter of strong growth leading us to improve our expectations for our full-year financial results,” Lockheed Martin Chairman and CEO Marillyn Hewson said in a statement. “As we look ahead to 2019, we remain focused on providing innovative, essential solutions to customers, and continuing to generate growth and long-term value for shareholders.”
Related: 4 Aerospace & Defense ETFs Ahead of Lockheed Martin, Boeing, Raytheon Earnings
Defense Spending on the Rise
Last month, the Senate approved a wide-ranging, $854 billion bill that includes a $675 billion allocation towards the Defense Department, accounting for almost 80% of the total bill. In short, the United States doesn’t skimp on defense spending.
Additionally, such a large allocation towards defense didn’t receive much contention as Senators approved the bill 93-7.
“Critically, after subjecting America’s all-volunteer armed forces to years of belt-tightening, this legislation will build on our recent progress in rebuilding the readiness of our military and investing more in the men and women who wear the uniform,” said Senate Majority Leader Mitch McConnell, R-Ky.
McConnell’s comments buttress the willingness of the U.S. government to open their wallets for defense spending–an estimated $610 billion goes towards defense, besting the money spent by the next seven countries combined.
In turn, defense stocks have been reaching all-time highs with aforementioned names like Boeing, Raytheon, Lockheed Martin and L3 Technologies leading the way. As such, the gains in equities have been spilling over into ETFs and here are four to keep an eye on as earnings results are revealed, starting with Lockheed Martin on Tuesday.
A number of market analysts feel that this run in the aerospace and defense sector could continue even after the extended bull market continues to lose steam and delve into a full-blown correction. According to MarketWatch investing columnist Philip Van Doorn, “stock prices tend to be driven by increases in earnings. The federal income tax cuts that went into effect this year will no doubt boost profits and potentially share prices. But that party will surely end, after which it is reasonable to expect the aerospace and defense subsector to continue to outperform the broader market.”
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