Republican sweeps have led to strong gains in defense stocks in the past. However, if such a landslide occurs this time, that may not be the case. Wells Fargo analyst Matthew Akers said the defense industry has historically performed better when Congress and the executive branch are controlled by one party — especially Republicans. He noted that under Republican-controlled administrations, the industry outperformed the S&P 500 by more than 12 percentage points. Under Democratic-led administrations, the index has outperformed the broader market by nearly 6 percentage points. Polls show that former President Trump currently has an advantage over President Joe Biden in the election. However, Akers believes the defense sector may not benefit if Republicans sweep away this election cycle. The analyst said Trump’s skepticism toward NATO could mean reduced weapons funding for Ukraine. Republican control of both branches of the Legislature could also lead to budget cuts in federal IT revenue — which, of course, Akers said, could be difficult unless the Republican majority is stronger than current polls suggest. “Even with a majority, Republican leaders will need to thread the needle between the right-wing House Freedom Caucus and the left-wing Senate Democrats (40+) to block the budget without a fair allocation of non-defense funding. The other two are on our radar The possibility of further tariffs on China by the Trump administration could also have a negative impact on Boeing, as the defense and non-defense sectors are likely to see years of low growth, Akers said. export items and has become a target of ongoing trade tensions between the two countries. However, TD Cowen believes the opposite could also happen. The company said a Trump presidency would be good for the defense sector. While the company acknowledged that overseas defense and emergency spending may decline, it does not believe this situation will completely disappear. “We believe the outlook for defense companies (revenue growth and transition from development work to production) is better than expected,” TD Cowen wrote in a note. ” The company cited the Republican platform, which emphasizes a “strong military,” restoring peace and “Made in America” defense systems. The iShares U.S. Aerospace & Defense ETF (ITA) has lagged the broader market this year, rising just 7.7% while the S&P 500 has gained 18%. ITA .SPX YTD Mountain ITA Year to Date
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