Defense playing offense?
- Aerospace/defense positive for the year
- Morgan Stanley & Co. sees “more carrots than sticks”
- Multiple defense stocks releasing earnings next week
While tariffs have increased the uncertainty surrounding international trade, one industry may be better positioned than most to weather the current environment—defense.
That may be one of the reasons that aerospace and defense is one of five industries (out of 12) in the S&P 500 industrial sector with a positive return for the year. The group includes Northrop Grumman (NOC), which is trading above its pre-tariff levels. The stock, which is up roughly 15% for the year, rallied more than 2% on Wednesday, trading within $12.50 of the all-time high it hit in October 2022:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest directly in an index.)
Morgan Stanley & Co. discussed NOC in recently published research that upgraded aerospace and defense to “attractive” based on, among other factors, prospects for a $1 trillion US defense budget and the potential for increased international exports.
As the analysts explain, there are two major factors underlying their upgrade. First, defense is largely insulated from tariff risk, in part because of its primarily domestic supply chain.1 Second, buying from US defense suppliers may be an opportunity for countries to reduce their trade imbalances with the US—a major goal of the Trump administration.
Market Mover Update: MP Materials (MP) appeared on Wednesday’s LiveAction scans for both unusual call and put volume, with the former running nearly 15 times average and the latter more than 25 times average (see “Rare move in the materials sector”).
While gold rallied more than 3% intraday to a new record high on Wednesday, copper prices are still more than 10% below their late-March high, despite having rallied more than 13% off their April 8 low (see “Metals, miners, and momentum”).
Today’s numbers include (all times ET): housing starts and building permits (8:30 a.m.), weekly jobless claims (8:30 a.m.), Philadelphia Fed Manufacturing Index (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.).
Today’s earnings include: American Express (AXP), D.R. Horton (DHI), Fifth Third Bancorp (FITB), Keycorp (KEY), Taiwan Semiconductor (TSM), UnitedHealth (UNH).
Note: NOC is currently scheduled to release earnings on April 22, as are Lockheed-Martin (LMT) and GE Aerospace (GE). General Dynamics (GD) is scheduled for April 23.
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1 MorganStanley.com. Upgrading Defense to Attractive; Upgrade LMT to OW and Downgrade GD to EW; NOC to Top Pick. 4/12/25.