Investors Play Offense With Defense-Focused Stocks
June 24 2019 - 3:58PM
Dow Jones News
By Corrie Driebusch
The U.S. may have held off on an airstrike against Iran in favor
of sanctions, but U.S. stock investors are decidedly choosing
aerospace and defense.
This year, investors have been on the offense when it comes to
buying the defense sector's stocks. The SPDR Aerospace &
Defense Exchange Traded Fund is up 31% in 2019, twice that of the
Utilities Select Sector SPDR Fund.
In the past month, the disparity has been more striking -- the
aerospace/defense ETF's gains are three times that of utilities.
Thanks to this surge, now the defense stocks have nearly caught up
with utilities over the past 12 months after a brutal selloff to
close out 2018.
Among the best performers in recent weeks are well-known defense
contractors Lockheed Martin Corp. and Northrop Grumman Corp., while
smaller Kratos Defense & Security Solutions Inc., which
provides technology to the Defense Department, and Axon Enterprise
Inc., maker of Tasers and body cameras, have also soared.
Part of the bullishness stems from a bigger budget for national
defense. In late May, the Senate Armed Services Committee voted to
advance the National Defense Authorization Act for 2020. The
committee's markup of the act, which specified dollar amounts,
included $750 billion in funding for national defense. One apparent
beneficiary was Kratos, according to some analysts, who noted
spending that appeared to be related to Kratos' Valkyrie drone.
The belief that the aerospace-and-defense industry stands to
benefit from big U.S. government spending has helped the ETF rise
even as one of its big components has stumbled. Boeing Co., the
largest company in the ETF by market capitalization, has risen in
recent weeks, but its May tumble on concerns about the safety of
the company's 737 MAX have kept shares at a loss of 1.7% since the
end of March.
Meanwhile, utilities stocks, while up in recent weeks as
interest rates touch fresh multiyear lows, can't keep up in 2019.
The Utilities Select Sector SPDR Fund was little changed in recent
trading, while the SPDR S&P Aerospace & Defense ETF rose
0.4%.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
(END) Dow Jones Newswires
June 24, 2019 15:43 ET (19:43 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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