Here’s Why Defense and Aerospace Stocks are Selling Off
Reason: The new debt deal will force large cuts in government defense spending over the next two years, with more cuts of significant size likely over the next decade as well. Fox business reports, “out of the $7 billion in domestic discretionary cuts taking effect in fiscal year 2012, at least half will come from security-side funding. For fiscal year 2013, roughly half of the $3 trillion in cuts will come from security-side funding.” That’s a lot of big government contracts that leading defense companies will be missing out on. Count on those losses to eat into revenues in a big way.
These defense and aerospace companies (NYSE:PPA) are already dipping into the red this morning, brace for bigger losses once the debt deal is officially signed into law:
Boeing Company (NYSE:BA) -0.17%, Lockheed Martin Corporation (NYSE:LMT) -0.83%, Northrop Grumman Corporation (NYSE:NOC) -2.02%, General Dynamics Corporation (NYSE:GD) -1.07%, Kratos Defense & Security Solutions (NASDAQ:KTOS) -1.20%, Raytheon Company (NYSE:RTN) -1.07%, L-3 Communications Holdings (NYSE:LLL) -2.05%, and PowerShares Aerospace & Defense ETF (NYSE:PPA) -0.84%.