Defense Stocks Continue to Soar Despite the Sequester

ITA continues to speed ahead of the major indexes

   
Defense Stocks Continue to Soar Despite the Sequester

Just over a year ago, there were a lot of folks raising concerns about sequestration budget cuts and about how it would destroy jobs and slam America’s defense contractors.

But in hindsight, all of those fears were far overblown.

“Counterintuitively, since sequestration kicked in on March 1, 2013 the Dow Jones U.S. Select Aerospace and Defense Total Return Index (ITA) has risen 55.6%, compared to gains of less than half that in the other major US indexes,” said Oppenheimer’s John Stoltzfus. “Over the same period to April 4th, 2014, the S&P 500, the S&P 400 (midcaps), and Russell 2000 (small caps) have delivered total returns of 25.7%, 26.4% and 28%, respectively.”

Stocks have a funny way of doing just the opposite of what you would expect them to do.

Stoltzfus, however, argues there is an economic rationale for the rally in defense stocks.

“Realities of instability in the Middle East (Iran, Syria, Egypt), North Korea and most recently in Ukraine remind us that from a super-secular cycle, mankind has been at war or at risk of war for most of history,” he said. “The necessity of protecting borders and trade routes as the process of globalization continues likely contributes to the loyalty that investors have shown for this specialty index.”

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Article printed from InvestorPlace Media, http://investorplace.com/2014/04/defense-stocks-continue-thrive-despite-sequester/.

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