Summary
- Current geopolitical setting would call for increase defense budgets regardless of who's in Office.
- China plays a key role for the US to keep increasing budgets.
- The pandemic, increasing deficit and debts do put constraints on any future budget.
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With the presidential elections coming up, it's always the big question how certain industries will fare under a change of president. During the previous elections, it seemed that Wall Street was favoring a win for President Trump with the prospect on tax cuts and increased defense spending, while his opponent, Hillary Clinton, seemed to be going after the pharmaceutical industry and Wall Street. These elections will be one like no other due to the pandemic and many other reasons. I don’t want to make this a political piece and I ask my readers to share their views but not to make it a political discussion. My main aim is to outline why I believe that regardless of whom will be winning the presidential elections big changes to defense spending are not expected and that it will mean no disruption to the business for Boeing (BA) or Lockheed Martin (LMT).
Source: House.gov
Defense budget development
Figure 1: Defense budget development (Source: AeroAnalysis)
Figure 1 shows that under President Obama defense spending declined in some of the years, and in fact under President Obama, there was a net decline in defense spending. Under President Trump, defense spending has increased as was expected but it should also be considered that defense spending budgets is not a clear-cut thing. So, you will have a one-year time delay for a president’s influence on the budget to be reflected in the numbers. That already shows that defense companies really won’t start suffering or gaining from a fundamental point of view as soon as the President is sworn in. Much of the price movement in election years have been forward looking in that regard and one could even say that for the current elections is largely psychological.
