U.S. defense rally may stall even as North Korea tensions flare
Investors have flocked to U.S. defense stocks amid escalating tensions with North Korea and President Donald Trump’s promises to boost the military, but with towering valuations, their steepest gains may be behind them, APA reports quoting Reuters.
The S&P 500 Aerospace & Defense index .SPLRCAERO has risen 23 percent year-to-date, more than double the S&P 500's .SPX 10 percent increase, and is set for its strongest annual gain since 2013.
Partly due to the situation with North Korea, the index is now valued at about 20.5 times earnings estimates for the next 12 months, its highest since 1999, according to analysts. While defense stocks may continue to spike briefly when rhetoric between Washington and Pyongyang is at its most aggressive, strategists question whether valuations can expand much more.
“To have significant outperformance, it would take large-scale military operations, or a belief the global economy is significantly weakening,” said Jeff Morris, head of U.S. equities at Aberdeen Standard Investments in Boston.
The defense sector’s fortunes may depend more on budgetary matters. If tensions over North Korea stay high, it may be easier for a deeply divided U.S. Congress to pass the 2018 budget, Morris said.
Still, investors should be realistic about spending growth.
“The expectation is that you are going to have a larger increase in the defense budget, but I think some of that is a little too bullish,” said Morningstar analyst Chris Higgins, pointing to fiscal hawks in the Republican Party.
Trump, a Republican, tweeted on Tuesday that he would let Japan and South Korea buy more U.S. military gear, but government approval of weapon sales to foreign countries can take years.
Related news releases
- 22.02.2018US: Melania Trump’s parents become US residents
- 22.02.2018U.S. SEC updates guidance on cyber attack disclosure for companies
- 21.02.2018US: students rally in Florida to stop school shootings
- 21.02.2018U.S.-led air strike in Somalia kills three al Shabaab militants: statement
- 21.02.2018US pledges closer cooperation with Turkey
- 21.02.2018Trump pushes for ban on gun 'bump stocks'
- 21.02.2018Trump phones Mexican president over copter crash
- 20.02.2018Pentagon prepares new ballistic missile defense review
- 19.02.2018Tillerson says new sanctions can be imposed on Russia
- 18.02.2018US to work with Turkey on liberated areas in Syria
- 18.02.2018Brazil to form public security ministry to battle rising crime
- 18.02.2018US charges 13 Russian nationals, 3 organizations with alleged meddling in 2016 election
- 17.02.2018Mexico helicopter crash kills 13 on ground in wake of earthquake
- 17.02.2018Helicopter with interior minister, governor crashes into van in Mexico, kills two
- 17.02.2018Flu killed 22 American children last week
- 17.02.2018Mexico hit by major earthquake of magnitude 7.5
- 17.02.2018FBI failed to investigate Florida shooter tip
- 16.02.2018US grand jury indicts 13 Russians for election meddling
- 16.02.2018John Kirby: "Tillerson breaks protocol by meeting Erdogan without translator"
- 16.02.2018Tillerson and Turkey's Erdogan had productive conversation: U.S. spokesman
- 16.02.2018US court says travel ban discriminates against Muslims
- 15.02.2018FBI was warned about Florida gunman
- 15.02.2018Avalanche kills three skiers in France
- 15.02.2018US and Russia dispute over Syria in UN Security Council
- 15.02.2018Any U.S. talks with North Korea would press denuclearization demand: Pence
- 15.02.2018Tillerson wants more cooperation with Turkey on Syria
- 15.02.2018Ex-student kills 17 in shooting spree at Florida high school- UPDATED
- 14.02.2018New US sanctions against Russia to come in near future - US Treasury Secretary
- 14.02.2018Shooting outside NSA campus leaves at least three injured
- 14.02.2018Tillerson stresses need to discuss issue of co-op to reduce threats against Turkey
- 14.02.2018Washington Has No Problem With Turkey's Plan to Rename US Embassy Street
- 14.02.2018State Department: US Ready to Hold Talks With North Korea
- 14.02.2018Several People Injured in Utah Shooting
- 13.02.2018Tillerson: "Turkey's operation in Afrin negatively affected the fight against ISIL"
- 13.02.2018Tillerson visits Egypt's Sisi at start of Mideast tour
- 13.02.2018Trump daughter-in-law hospitalized over suspect letter
- 13.02.2018White House dismisses idea of U.S.-Israel discussing settlement annexation
- 11.02.2018Canadian PM motorcade crashes, police officer and two others injured
- 11.02.2018Ohio police officers were killed while protecting others, chief says
- 10.02.2018FARC suspends political campaigning in Colombia
- 09.09.2017At least 58 die in Mexico's strongest quake in 85 years
- 09.09.2017Mexico's strongest quake in 85 years kills dozens in the poor south
- 09.09.2017Hurricane Irma makes landfall in Cuba as Category 5
- 09.09.2017Irma pummels Bahamas and Cuba on its track toward Florida
- 08.09.2017Hurricane Irma may cut power to over nine million people in Florida
- 08.09.2017At least 5 dead as magnitude-8.1 earthquake rocks southern Mexico