Trump is about to return to the White House, Bernstein is bullish on U.S. defense stocks against the trend
With Trump's return to the White House, Bernstein analysts are optimistic about the stocks of U.S. defense contractors. Analyst Haned pointed out that Trump will continue to seek a strong defense, despite concerns about cuts to defense spending. Although defense stocks have performed poorly after the election, there are currently no signs that major defense contractors are facing significant issues. U.S. and European defense companies are expected to benefit from the demand to counter the threat from Russia
According to the Zhitong Finance APP, analysts at financial services company Bernstein have stated that with Donald Trump returning to the White House as the elected President of the United States, investors have reason to feel optimistic about the stocks of U.S. defense contractors.
Bernstein analyst Glass Haned said on Monday, "We expect Trump to seek a strong defense like he did in his first term, even if he tries to avoid getting involved in overseas conflicts. Trump has been outspoken about the need for a strong nuclear deterrent, missile defense, and expanded space capabilities."
A key concern is whether the new Department of Government Efficiency (DOGE), co-led by Tesla (TSLA.US) CEO and SpaceX founder Elon Musk, will seek to cut defense spending. Bernstein noted that this concern has led U.S. defense stocks to underperform the market in the 20 days following the U.S. elections.
Haned stated, "But so far, we have not seen Elon Musk make any statements indicating that there are significant issues with major defense contractors." "So far, the methods for cost reduction seem to focus on management expenses (we are even skeptical about this). There are some targets related to streamlining contracts and bringing in more commercial competition (such as SpaceX)."
Trump has announced the nomination of Russell Vought as the Director of the Office of Management and Budget. Haned indicated that if Vought seeks spending caps, it could raise concerns. Vought previously led the Office of Management and Budget during Trump's first term and was a co-author of the government reform plan "Project 2025."
Bernstein noted that in 2017, the first year of Trump's presidency, defense stocks saw strong gains.
Haned remarked, "The previous administration also significantly lowered corporate taxes, but this time it hasn't. However, there is a positive factor this time, which is exceptionally strong export demand. Even if the Ukraine issue is temporarily resolved, we expect U.S. and European defense companies to continue benefiting from Europe's demand to address the threat from Russia."