Red was the dominant color all over the electoral map Tuesday night and green has taken over many corners of Wall Street since with defense and other GovCon stocks in particular the focus of investors.
Traders priced in a Republican Congress and Hillary Clinton presidency prior to Tuesday but like the rest of the world woke up shocked to learn that Donald Trump won the White House with a GOP legislature.
Investors immediately repositioned themselves toward equities they view with heightened growth prospects over the next four years and defense is one of the week’s clear winning sectors from whatMotley Fool termed a “Trump Effect.”
A pre-election Bloomberg survey of defense analysts found many expected a military spending uptick regardless of the election’s result but this week’s activity in markets shows the clear bet many are making.
Our GovCon Index of 30 large government contractors that includes many large defense primes has registered two straight record closes Wednesday and Thursday and it appears on track to set a new all-time high again Friday.
All the usual suspects dominated the attention of investors: General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon.
One clear advancer we first noted Wednesday has been the U.S. largest military shipbuilder Huntington Ingalls Industries as traders have seemingly fixated on this company as a beneficiary of the defense spending increase all observers expect.
Defense watcher Loren Thompson pointed to HII in his post-election Forbes column along with shipbuilding competitor General Dynamics as companies to watch in light of Trump’s intention to grow the Navy’s fleet.
Thompson also noted the nuclear modernization effort as an area that could gain traction in a Trump administration and expansion of the Air Force’s fighter jet fleet.
Defense stocks have long traded in a counter-cyclical manner versus other sectors as a “safe haven” in periods of market volatility but this week is the first indicator of a shift away from that mantra.
In other words, The Street’s buying spree foreshadows the impending spending spree.
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