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Here are 3 key parts to the latest defense stock rally, as it play on the Trump trade…
Number One--
A Republican President and Republican control of both the Senate and the House of Representatives means the chance of passing a spending bill is much higher. That led scores of covering analysts to raise EPS estimates on companies that can benefit – in particular from more Infrastructure or Defense spending. There may also be less regulation on the Health Care and Financial sectors.
Number Two--
Higher expected spending and lower taxes by the soon-to-be-installed federal government has been the main driver behind recent bond investor transactions. They sold their U.S. Treasuries to buy stocks or move to cash or alternatives. T-bond selling pushed risk-free federal government bond interest rates sharply higher. Remember, T-bond prices and interest rates move in opposite directions.
However, there is a bearish Number Three--
The Equity Market sky is not clear to the horizon. Respected market strategists have spoken up with meaningful concern. This fearless stock market looks to be underestimating the possibility of President Trump rattling risk markets during his 4-year term. He remains unpredictable.
There are big GDP growth negatives to higher long-term bond rates. Think about the pace of house buying and the effects of a stronger U.S. dollar. There are also negatives to less regulation. Recall the wonderful poorly regulated securitized mortgage markets in 2006.
The best Bull example in this recent phenomenon may be Defense stocks.
The 13-company strong Zacks Aerospace-Defense industry has been bid up in recent trading, gratis the widely covered Trump rally. We can thank the ETF industry for the broad, ebullient share price pick-up.
However, Industry EPS fundamentals help keep these shares aloft, too. The current Aerospace-Defense Zacks Industry Rank comes in at a terrific #35 out of 265, rising +12 industry spots more in recent weeks. Covering analysts raised their estimates 40 times during this time period, with only 5 cutting estimates. That’s the ‘Number One’ Trump rally evidence I'm talking about!
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +26% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 11X worse than the market. See these critical buys and sells free >>
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Time to Buy or Sell Defense Stocks?
Here are 3 key parts to the latest defense stock rally, as it play on the Trump trade…
Number One--
A Republican President and Republican control of both the Senate and the House of Representatives means the chance of passing a spending bill is much higher. That led scores of covering analysts to raise EPS estimates on companies that can benefit – in particular from more Infrastructure or Defense spending. There may also be less regulation on the Health Care and Financial sectors.
Number Two--
Higher expected spending and lower taxes by the soon-to-be-installed federal government has been the main driver behind recent bond investor transactions. They sold their U.S. Treasuries to buy stocks or move to cash or alternatives. T-bond selling pushed risk-free federal government bond interest rates sharply higher. Remember, T-bond prices and interest rates move in opposite directions.
However, there is a bearish Number Three--
The Equity Market sky is not clear to the horizon. Respected market strategists have spoken up with meaningful concern. This fearless stock market looks to be underestimating the possibility of President Trump rattling risk markets during his 4-year term. He remains unpredictable.
There are big GDP growth negatives to higher long-term bond rates. Think about the pace of house buying and the effects of a stronger U.S. dollar. There are also negatives to less regulation. Recall the wonderful poorly regulated securitized mortgage markets in 2006.
The best Bull example in this recent phenomenon may be Defense stocks.
The 13-company strong Zacks Aerospace-Defense industry has been bid up in recent trading, gratis the widely covered Trump rally. We can thank the ETF industry for the broad, ebullient share price pick-up.
However, Industry EPS fundamentals help keep these shares aloft, too. The current Aerospace-Defense Zacks Industry Rank comes in at a terrific #35 out of 265, rising +12 industry spots more in recent weeks. Covering analysts raised their estimates 40 times during this time period, with only 5 cutting estimates. That’s the ‘Number One’ Trump rally evidence I'm talking about!
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +26% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 11X worse than the market. See these critical buys and sells free >>