The final result has yet to be tallied, but the outcome of the U.S. election could have a big impact on one area of the market: the defense sector.
The ITA aerospace and defense ETF outpaced the S&P 500 in the early years of the Trump administration, partially bolstered by government spending, but has faltered since the pandemic March lows. While Democratic presidential candidate Joe Biden has stopped short of vowing to make cuts to the defense budget, which has increased under President Donald Trump, he has said that Trump’s approach has abandoned all fiscal discipline.
Mark Tepper, president of Strategic Wealth Partners, sees a win-win scenario for the defense stocks.
“No matter who wins, we still need to protect our country. And there’s also no doubt that the new age of warfare is more digital, more cyberattacks, less tanks, less aircraft carriers,” Tepper told CNBC’s “Trading Nation” on Tuesday afternoon.
He noted investors may be concerned a Biden victory would mean less defense spending but argued that it would likely mean a shift in investment toward defense modernization.
“That’s where I’d want to be no matter who wins the White House. A company we own, Leidos, … they provide cybersecurity IT and analytics for defense and intelligence purposes. The U.S. government makes up 80% of their revenues,” said Tepper.
Leidos shares have fallen 27% from February highs — Tepper says this could be an attractive entry point. The stock has gained nearly 12% just this week.
Todd Gordon, founder of TradingAnalysis.com, agreed that spending will likely move toward technology-focused defense.
“We have to consider technology, but I think we have to look up in terms of space with Space Force. I think [Tesla CEO Elon Musk’s] venture into space … was a demonstration the private sector can work with NASA,” Gordon said during the same “Trading Nation” segment.
Earlier this year, the Pentagon sought $18 billion in funds for space programs in 2021 such as the United States Space Command.
Disclosure: Strategic Wealth Partners holds shares of Leidos.
