“The focus now shifts to the fiscal cliff, and the associated sequester,” he said, adding that reaching a deal “could still be a fraught process, given the lack of co-operation and willingness to compromise between the two parties over the last two years.”
Stallard said defense stocks had largely rallied with the market this year but could see greater pressure “if the fiscal cliff deadline starts to loom and no progress is being made.”
Analysts had predicted gains for defense industry shares if Republican Mitt Romney had won the White House, given his promises to increase military spending.
Barclays analyst Carter Copeland said an Obama victory was “less bullish” for short-term stock prices, but the election results were unlikely to have a significant impact on the long-term outlook for U.S. defense budgets.
Frank Kendall, the Pentagon’s top arms buyer, on Monday said he expected U.S. lawmakers to agree in coming weeks to delay implementation of the automatic defense spending cuts. He said no one in Congress wanted the cuts to kick in on Jan. 2 and Obama was determined to avert the reductions.
Lockheed Martin Corp and other U.S. defense contractors have been warning for over a year that uncertainty about future budget levels is depressing investment in facilities, hiring and mergers and acquisitions.
Lockheed, Northrop Grumman Corp, Boeing Co and Raytheon Co told investors last month that they were focused on cutting costs and drumming up foreign sales to maintain profits, amid a long cycle of budget challenges after more than a decade of growth.
But Kendall said the Pentagon is listening to industry’s concerns. He is due to unveil additional measures next week aimed at reducing cost overruns on weapons programs, including a bigger focus on promoting exports of U.S. technology, a move likely to be welcomed by industry.
The Pentagon this week announced $7.6 billion in potential sales of Lockheed missile defense systems to the United Arab Emirates and Qatar, and analysts see additional sales in this area on the horizon.
Lockheed, Boeing and Raytheon are likely to benefit from increased exports of U.S. defense equipment in coming years.