On Thursday, military stocks fell unexpectedly. U.S. President-Elect Trump named Pete Hegseth as his pick for defense secretary. The Fox News host is an author and a military veteran.
In this position, Hegseth will have the power to decide on key issues like military assistance for Israel. He will also make decisions about support for Ukraine. The market's negative reaction is a deep concern for investors exposed to the defense and aerospace sectors.
Lockheed Martin (LMT), RTX (RTX), Amentum Holdings (AMTM), General Dynamics (GD), Huntington Ingalls (HII), TransDigm (TDG), and L3Harris Technologies (LHX) are among the stocks recording the biggest drop in months. In addition, Northrop Grumman (NOC) fell while the U.S. Aerospace & Defense ETF (ITA) lost 3.14% yesterday.
The market is potentially overreacting. The sector needed a sharp day of profit-taking. In 2024, TDG stock, for example, gained 25.71% while LMT stock gained 18.9%. Still, the S&P 500 (SPY) gained 24.83% YTD, so the defense contractors are not outperforming the broader market.
Your Takeaway
The government has already established long-term supply contracts with the above-mentioned firms. Revenue will not change in the near term. As tensions among countries rise globally, the new defense secretary may continue spending commitments. This would lead to a continued uptrend for aerospace and defense stocks.
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