Trump Likely To Raise 2020 Defense Budget: 5 Great Picks

Even as markets continued to experience volatile trading on Dec 10, aerospace and defense stocks were staging a midday rally. Gains for the sectors were fueled by a report that President Trump has asked the Pentagon to raise its budget proposal for fiscal 2020. This is a complete turnaround from Trump’s recent commitment to reduce defense spending in line with cuts planned at other federal agencies.

U.S. companies ended up at the summit of the top 100 defense companies in the world in terms of sales in 2017, per a fresh study. Another factor boosting the defense sector at this point is a divided Congress. While the Trump administration is intent on boosting defense spending, Democrats have agreed to the defense budget for fiscal year 2019. Taking these factors into account, it makes sense to bet on defense stocks at this time. 

Defense Stocks Surge, Trump Proposes Budget Hike

U.S. stocks endured a particularly volatile Monday with the Dow recovering from a 500-point drop at the end of the session. Ultimately, markets finished in the green because of a tech stock rebound. But even when markets were moving lower early in the session, defense stocks were notching up gains.

Shares of Raytheon (RTN - Free Report) , Lockheed Martin (LMT - Free Report) and Northrop Grumman (NOC - Free Report) gained 3.7%, 4.6% and 4.9%, respectively. General Dynamics (GD - Free Report) increased 2.9% even as Boeing (BA - Free Report) recovered to gain 1%.

The immediate trigger for these gains was a report by Politico per which President Trump has asked Defense Secretary James Mattis to present a $750 billion defense budget proposal for 2020. This is significantly higher than the $733 billion proposal which the Pentagon has been fighting for to date.

This also represents a complete turnaround for Trump, who has gone on record to describe the 2019 budget as “crazy.” The President has even vowed to cut defense spending by around 5%, in line with proposed cost cuts at other federal agencies.

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