The Outlook for Defense Stocks in the 2020 Election

The upcoming 2020 election has many investors wondering about the future of defense stocks. Historically, a GOP sweep has led to strong gains for the defense sector. However, according to Wells Fargo analyst Matthew Akers, the outcome may not be the same this time around.

In previous scenarios where there was a single party in control across Congress and the executive branch, especially the Republican Party, the defense sector outperformed the S & P 500. Under a GOP-controlled government, the sector has beaten the broad market index by more than 12 percentage points. On the other hand, under a Democrat-led government, it outperforms by nearly 6 percentage points.

Akers believes that a Republican sweep in this election cycle may not necessarily benefit the defense sector. With President Donald Trump’s NATO-skeptic outlook, there could be decreased weapons funding for certain countries like Ukraine. Additionally, Republican control of both branches of the legislative branch could lead to budget cuts for federal IT revenue.

While Wells Fargo analyst Matthew Akers is cautious about the outlook for defense stocks in the upcoming election, TD Cowen has a more positive view. The firm believes that a Trump presidency would be positive for the defense sector, citing the Republican Party’s platform of a strong military and “made in America” defense systems.

Despite the uncertainty surrounding the election, the iShares U.S. Aerospace & Defense ETF (ITA) has lagged behind the broader market this year, with only a 7.7% increase compared to the S & P 500’s 18% rise. This indicates that investors are being cautious about the future performance of defense stocks.

The 2020 election poses unique challenges and opportunities for defense stocks. While historical trends suggest that a GOP sweep could benefit the sector, there are uncertainties surrounding budget cuts, international relations, and trade tensions that could impact the performance of defense stocks in the coming years. Investors will need to carefully monitor the election results and policy decisions to make informed decisions about their investments in the defense sector.