November 07, 2012
Credit: Credit: Architect of the Capitol
U.S. weapons makers took a pounding in the stock market Wednesday as investors priced in leaner times from President Barack Obama’s re-election.
Analysts had predicted gains for defense industry shares if Republican Mitt Romney had won the White House, given his promises to increase military spending.
But Obama’s victory will continue the downward trend in defense spending, as the government struggles to rein in budget deficits and draws down the military presence in Afghanistan, analysts said.
Shares of Lockheed Martin Corp (LMT.N), Northrop Grumman Corp (NOC.N), General Dynamics Corp (GD.N), L-3 Communications (LLL.N) and Raytheon Co (RTN.N) were down between 5.8 percent and 4.5 percent in early trading. Boeing Co (BA.N) shares were down 2.6 percent. The Dow Jones industrial average was down 2.3 percent.
Some saw the trend continuing. “We expect a pullback in defense stocks over the coming days,” analysts Peter Arment and Josh Sullivan said in a note to clients Wednesday.
Barclays analyst Carter Copeland said that although Obama’s victory was “less bullish” for short-term stock prices, the election was unlikely to have a significant impact on the long-term outlook for U.S. defense budgets.
Some analysts said Obama’s re-election may help Congress delay $500 billion in defense spending cuts, giving lawmakers more time to come up with other ways to reduce the federal deficit that might not be so heavy on defense.
Obama’s pledge in his victory speech to reach across the aisle and work with Republicans on reducing the deficit fueled hope among industry executives and defense experts that the indiscriminate $500 billion in cuts due to take effect on January 2 would be put off until the end of March when a temporary 2013 budget measure and Bush-era tax cuts expire.
But the final compromise may still result in some additional cuts in the defense budget, analysts and industry executives said.