Defense Contractors Hit by Political Uncertainty, Stock Prices Tumble
US defense contractors are facing a challenging landscape in the wake of recent policy changes and geopolitical uncertainties. The S&P 500 Aerospace and Defense Index has suffered four consecutive weeks of losses, while European arms makers have outperformed, buoyed by increased defense spending commitments.
Concerns stem from various factors, including:
* President Trump's proposal to reduce the defense budget
* Defense Secretary Hegseth's plan to cut military spending by 8% over five years
* Elon Musk's criticism of F-35 fighter jets
Analyst Will Lee of Bloomberg Intelligence believes investors are hesitant due to the lack of clarity surrounding government spending plans. Major defense companies such as Lockheed Martin Corp. and General Dynamics Corp. have seen significant stock price declines in recent months.
Risks remain for defense primes in the current political environment, according to analysts like Kristine Liwag of Morgan Stanley and Ken Herbert of RBC Capital Markets. Herbert predicts ongoing uncertainty will pressure defense stocks, but notes that valuations may represent a buying opportunity with improving visibility.
Lee of Bloomberg Intelligence suggests defense primes will adapt to the Trump administration's priorities to remain competitive.