Omnibus Spending Bill 2018: How Defense Stocks Fared


Facing a deadline to prevent a government shutdown in March 2018, the House and Senate put together a $1.3 trillion spending bill that was signed by President Trump. Running 2,000-plus pages, the bill allocated federal money through the end of September 2018 and included quite a boost to defense spending.

And to smart investors…

In fact, Congress just earmarked $654.6 million for the Pentagon – an increase of $61.1 billion year over year, as global tensions increase with North Korea, Russia, China and the Middle East. 

"Overall, this is the biggest year-to-year increase in defense funding in 15 years -- a $61 billion increase over FY2017 enacted levels," the Senate Defense Appropriations Committee said in its overview, as quoted by Miltary.com.

That’s big news for stocks like Boeing (BA), Lockheed Martin (LMT), Northrop Grumman (NOC) and Raytheon (RTN).


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Here’s why.

Missile defense will see $11.5 billion, a year over year increase of $3.3 billion. That’s also more than the $9.5 billion initially requested by the Missile Defense Agency (MDA), which will also get $393 million to speed up Boeing’s “modernization of the kill vehicle in 20 Ground-Based Midcourse Defense System interceptors.”

Congress also approved the purchase of 24 new Boeing F/A-18 Super Hornet, and three more Boeing KC-46 tankers.

That’s quite a win for Boeing.

The budget also includes $165 million for more Lockheed Terminal High Altitude Area Defense interceptors, and $178 million for RTN SM-3 interceptors and another $137 million for RTN Sm-3 Block IIA missiles.

Then, Congress approved $84 million for six Northrop MQ-8 Fire Scout helicopters.

As a result of the announcement, investors sent related stocks higher, including:

  • Boeing, which ran from $320 to $340. 
  • Lockheed Martin (LMT), which ran from $325 to $345
  • Northrop Grumman (NOC), which ran from $338 to $355
  • Raytheon (RTN), which ran from $209 to $220

Had you invested in each name prior to the final word on the spending bill, the rewards were well worth the risk.

We’ve seen similar moves in defense stocks heading into previous decisions, too.

For one, when Trump inked a deal with Saudi Arabia worth $350 billion, stocks soared.

Then, Trump unveiled a $668 billion defense budget for 2018 that would boost military spending. It would increased the Defense Department’s based budget to $574.6 billion, buy six ships, new fighter jets, 15 new KC-46 air tankers, which are used for aerial refueling and help grow the U.S. military by another 56,000 new service members. 

Not only did BA, LMT, NOC and RTN run on such news, so did related ETFs, including:

  • The U.S. Aerospace & Defense ETF (ITA) which has run from $140 to $200
  • The Aerospace & Defense ETF (XAR), which has run from $65 to $90
  • The Aerospace & Defense ETF (PPA), which has run from $43 to $57

What’s nice about buying defense ETFs is the fact that many provide diversification among most defense stocks with a lower cost of entry.

It’s just something to keep in mind, as U.S. defense spending and needs increases.

 

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