Aerospace and defense industry stocks saw a bump in value Wednesday as a result of President-elect Donald Trump’s victory, a sign that defense contractors are looking forward to the next administration.
The S&P Aerospace & Defense index jumped 3.9 percent Wednesday, raising it to its highest level since 1989 and beating out the S&P 500 itself. It saw another 2 percent increase Thursday.
Several major defense contractors led the jump, including Raytheon Co., the world’s largest producer of guided missiles and Lockheed-Martin Corp., the company that created the highly controversial F-35 Lightning II fighter aircraft. General Dynamics Corp., designer of the F-16 Fighting Falcon, also saw a notable increase.
Defense contractors have good reason to look forward to a Trump presidency. The president-elect has promised to not only end the sequester on defense spending, but also drastically increase the purchase of military equipment.
“As soon as I take office, I will ask Congress to fully eliminate the defense sequester and will submit a new budget to rebuild our military,” Trump told supporters in Philadelphia in September.
Trump’s national security plan proposes adding more than 70 ships to the Navy and nearly 100 new aircraft to the Air Force. Defense contractors will undoubtedly be happy to provide the new vehicles after watching the military’s numbers deteriorate under President Barack Obama.
Trump also plans to put a hiring freeze on all federal employees, outside of the military and public safety. It is unclear whether or not the freeze would include civilian support staff, but if it does, defense contractors could fill the void by contracting out personnel services, offering another potential source of increased revenue.
The president-elect’s defense spending could add $55 to $80 billion annually to the current $583 billion in spending requests this year, according to Mackenzie Eaglen, a defense analyst at the American Enterprise Institute. Finding the money to offset those added costs is going to be problematic for the Trump administration.
Trump plans to offset defense spending by cutting out unnecessary bureaucracy in the Pentagon, a rather nebulous task.
“It’s a fantasy,” Eaglen told Bloomberg’s Anthony Capaccio. “I tried several times to disabuse them of the notion that this could ever pay for even a fraction of Trump’s buildup costs.”
Fantasy or not, Trump will enter the White House with a Republican majority in both the Senate and the House, meaning he will have little trouble pushing through his defense initiatives in congress.
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