Aerospace & defense stocks and ETFs underperformed the broader market last year, particularly in the fourth quarter, mainly due to trade and tariff concerns as these companies have a lot of exposure to international markets.
They are surging this year, thanks mainly to rising hopes for a US-China trade deal. Boost in defense spending in the US and reports of commitment by NATO members to increase military spending have also benefitted these stocks.
During the State of the Union address, President Trump reaffirmed commitment to higher defense spending and also mentioned that the US has secured a $100 billion increase in spending from NATO allies
Further, many companies in the sector have reported better than expected results. Boeing (BA - Free Report) , in particular, reported blockbuster results and the stock soared after the report. Some other industry leaders like Raytheon (RTN - Free Report) and Northrop Grumman (NOC - Free Report) also beat estimates.
Global air traffic continues to expand and rising middle class in emerging economies would be a key source of air travel demand going forward. This would continue to support the commercial aerospace businesses over the long-term.
At the same time, there are some concerns that widening federal deficit could impact defense spending in the early 2020s.
To learn more about the iShares U.S. Aerospace & Defense ETF (ITA - Free Report) , the SPDR S&P Aerospace & Defense ETF (XAR - Free Report) and the PowerShares Aerospace & Defense Portfolio (PPA - Free Report) , please watch the short video above.
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Disclosure: I own ITA in the ETF Investor Portfolio that I manage.