The US defense sector has underperformed the broader market in 2024. Is there any potential for upside? Joining Market Domination to discuss growth outlooks for the US defense sector are Bank of America Securities Senior Aerospace and Defense Analyst Ron Epstein and Citi Managing Director of Aerospace and Defense Lead Analyst Jason Gursky
According to Gursky, he advises investors to carefully weigh two factors when it comes to US defense stocks. First, "the crowding out effect" of interest rates, which could potentially impact taxes, government spending, and reform initiatives in areas like Medicaid. Secondly, "political dysfunction in DC" poses a significant risk, potentially leading to prolonged budget approval processes, threats to debt ceilings, and the imposition of budget caps.
Despite these challenges, Gursky maintains a bullish stance on the sector, expressing he expects "margin expansion to become an investor narrative".
Epstein notes that defense stocks have historically "outperformed by a wide margin" during election years, with the bulk of the upside occurring in the third quarter. While acknowledging the sector’s underperformance in the first quarter of 2024, Epstein remains optimistic, stating that "the set-up into the second half of the year is actually pretty good," expressing his bullishness on the sector’s forward trajectory.
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