The “Trump Effect” Is Real: These Stocks Will Soar
CNBC’s Morgan Brennan recently posed the following question to Raytheon Chairman and CEO Tom Kennedy:
“Of course we’re seeing increased defense spending around the globe right now. Some folks in this industry have actually pointed to what they call the ‘Trump Effect.’ Have you seen that, in terms of our allies and their spending?”
This was Kennedy’s answer:
“Not only have I seen that, leaders of these nations have asked me ‘What does the president think if this percentage of our GDP goes to defense? What do we need to do? What do we need to show this administration that we’re supporting them in terms of being a coalition partner in our spend on defense products? So it’s there it’s real its not something just written in the paper.”
Indeed, the “Trump Effect” is real. And it’s proving to be a boon for defense contractors like Lockheed Martin, Boeing, General Dynamics, Northrop Grumman, and obviously, Raytheon.
As Kennedy went on to point out, our allies in Europe — Romania, Poland, and Sweden, among others — are rapidly ratcheting up their defense spending.
President Trump has played a big part in that. He’s repeatedly scolded NATO allies for falling short of the group’s defense spending target (2% of GDP), instead relying on the presence of U.S. forces.
The president has also eased export restrictions on U.S. military technology and directed embassy staffers to act as advocates and salesmen for the U.S. defense industry.
Trump has even taken up the mantle himself at times, inking multibillion-dollar defense deals on foreign visits and encouraging more purchases.
During a visit to Saudi Arabia, for instance, Trump lauded a $12.5 billion arms deal to the desert kingdom.
"Saudi Arabia is a very wealthy nation, and they're going to give the United States some of that wealth, hopefully in the form of jobs, in the form of the purchase of the finest military equipment anywhere in the world," Trump said.
"There's nobody even close, as I said before, when it comes to the missiles and the planes and all of the military equipment. There's nobody that even comes close to us in terms of technology and the quality of the equipment, and Saudi Arabia appreciates that."
Of course, it’s not just Trump. Political tensions have been rising around the world, and acts of war are becoming more prevalent and more brazen.
No doubt, Donald Trump’s rhetoric and assertion that NATO is “obsolete” have had an effect on military spending in Europe. But so, too, did Russia’s invasion of Ukraine.
Neighbors, many of which are former Soviet satellite states, are terrified of being Putin’s next target — and Russia wants it that way.
Over the past few years, Russian forces have routinely harassed Swedish and Finnish planes and ships in the Baltic Sea. The country even sent a submarine near Stockholm.
Finnish Defense Chief General Jarmo Lindberg indicated these actions convinced his country to reevaluate its military and preparedness.
“The overall military activity in the neighborhood of Finland has been growing,” Lindberg said. “Russia, as we all know, has been active ever since Crimea. NATO has brought on forces to the Baltic states, and in Poland it has forward presence. There is a U.S. Marine Corps unit in Norway. Sweden has brought the forces back to the island of Gotland, and they also ran a huge national exercise—19,000 soldiers—this September."
He went on: “So overall military activity all around Finland has been growing for the last four, five years. That means that also we are in a situation where we have been analyzing our military capabilities, our military readiness—and based on our analysis, it is changing. So more reserve, it is better readiness and it is better spearheading of capabilities for all the services.”
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Baltic states — led by Estonia, Latvia, and Lithuania — have increased their spending, as well. They’re now spending more than twice as much on defense as they were in 2004.
Early estimates suggest collective military spending by NATO members will rise nearly 4% in 2018.
Meanwhile, on the other side of the planet, China is menacing its neighbors, claiming the entirety of the South China Sea and building military bases on artificial islands to enforce that claim. There’s also been speculation about an invasion of Taiwan.
China has also been pouring money into warships, stealth combat aircraft, advanced missiles, and other weapon systems in recent years. Its military spending is forecast to reach $203.3 billion in 2018, up nearly 6% from $192.5 billion last year.
Japan has been so unnerved, not just by China, but North Korea, that it abandoned its post-WWII pacifist policy and raised defense spending to a record-high $45.76 billion. The spending will focus mainly on U.S. equipment.
In all, global defense spending is forecast to reach $1.67 trillion in 2018, the highest level since the end of the Cold War.
But again, it is the United States that will lead the way.
The U.S. government has already earmarked $716 billion for defense spending in 2019. That’s an $82 billion increase from 2017, and one of the biggest defense budgets in modern American history.
This is yet another reason I’m launching The Wealth Warrior — a stock advisory service that focuses exclusively on defense contractors.
And I’m kicking it off next week with a cybersecurity stock that’s set to see some big gains in the months ahead. If you’d like to get priority information regarding that opportunity, just type your email below.
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Jason Simpkins is Assistant Managing Editor of the Outsider Club and Investment Director of The Wealth Warrior, a financial advisory focused on security companies and defense contractors. For more on Jason, check out his editor's page.
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