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Boeing and Lockheed Set to Soar on Trump's Defense Budget Proposal

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U.S. defense contractors and ETFs saw stocks prices rise after the plans for President Donald Trump’s “historic” 10% increase in military spending were announced Monday.

The Trump administration provided the first glimpse into their proposed 2018 budget early Monday. Trump’s budget calls for a $54 billion increase in defense funding. White House officials will present their target budgets for discretionary spending programs, which represent only roughly one-third of federal spending, next month.

Since the proposed budget announcement went public, the stock prices of the five largest U.S. defense contractors all went up. The biggest U.S. defense contractor, Lockheed Martin Corporation (LMT - Free Report) stock went up 1.96% to $269.36 on Monday. LMT is down 0.34% after early Tuesday morning trading. The next largest contractor, The Boeing Company (BA) saw its stock price rise 1.12% to $179.43 on Monday and it is up 0.99% after early Tuesday morning trading.

The remaining three companies, Raytheon Company , General Dynamics Corporation (GD - Free Report) and Northrop Grumman Corporation (NOC - Free Report) , stocks all rose on Monday as well.

IShares US Aerospace & Defense (ITA - Free Report) SPDR S&P Aerospace & Defense ETF (XAR - Free Report) and PowerShares Aerospace & Defense ETF (PPA - Free Report) , the three biggest Aerospace & Defense ETFs, stocks all rose 1% on Monday.

ITA, the leading defense ETF, rose 1.26% to $152.41 on Monday and is currently a Zacks Rank #1 (STRONG BUY). ITA is up 0.30% after early Tuesday morning trading. XAR is up 0.50% after Tuesday morning trading, and is also a Zacks Ranks #1 (STRONG BUY).

Trump’s first budget proposal will see $603 billion go to the military and $462 billion go to nondefense spending, according to director of the White House Office of Management and Budget Mick Mulvaney. The plan proposes that $54 billion be shifted directly from nondefense spending to military spending.

In order to shift spending to the military, the Trump administration plans to cut State Department and the Environmental Protection Agency spending along with other nondefense programs. The cuts won’t affect Social Security and Medicare, which make up nearly two-thirds of the $4 trillion federal budget, according to the White House.

The fiscal 2018 budget in question will begin on Oct. 1. Bolstering the defense budget by $54 billion would need to have 60 votes in the Senate to pass. On top of that, in order to pass this increased defense spending budget, lawmakers in both parties would have to lift budget restrictions imposed by the 2011 Budget Control Act.

According to previous Trump claims, the Army would expand to 540,000 active-duty troops from its current 480,000. Trump also said he would increase the number of Naval ships and submarines, increase the size of Air Force and add new Marine Corps battalions.

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