The transition from the Biden administration to the upcoming Trump administration is beginning to pick up pace. Some of the personnel choices for several of the highest public offices in the land are drawing significant amounts of criticism.
On Tuesday, November 12, the soon-to-be 47th President of the United States tapped Pete Hegseth, an Army National Guard Major to be the United States Secretary of Defense in Trump’s second cabinet. If confirmed, Hegseth would be the least qualified SecDef in American history — his lack of experience, conservative punditry, and proposed ideas have sent shocks through the defense community.
At first, the financial markets had a muted reaction to the nomination — but on November 14, shares of several major defense contractors experienced significant drops in price as doubts and worries continued to mount.
Picks for you
Defense contractors mark significant drops amid uncertainty
Markets obviously see troubles ahead, at least in the short term. The most affected venture is Leidos Holdings (NYSE: LDOS), which has seen a drop from $201.94 before the announcement to $161.20 at press time, marking a 20.17% decrease in price for LDOS shares.
This latest development has significantly reduced year-to-date (YTD) gains for the stock, currently at 49.65% — LDOS stock is effectively trading at September levels.
Although significantly less affected, General Dynamics (NYSE: GD), one of the nation’s largest contractors, still marked a significant loss.
On November 11, a day before the nomination was announced, GD stock was trading at $314.69 — at the time of publication, GD shares were trading at $287.80, amounting to an 8.55% decrease. At present, General Dynamics is up 11.56% on a YTD basis.
Finally, tech company L3Harris Technologies (NYSE: LHX) was trading at $262.84 before Hegseth was nominated — LHX shares have since seen a decline to $247.20 apiece, with the 5.87% drop bringing YTD returns down to 17.94%.
Are markets turning bearish on defense stocks?
It’s important to note that U.S. defense spending is unlikely to change significantly. The underlying fundamental case for each of these stocks has not changed. While the markets have reacted with a tinge of panic, not only is this not a decisive bearish turn — on the contrary, it could be a good opportunity to buy the dip.
In addition, readers should note that just as in the cases of Trump’s other controversial picks, like RFK Jr. for Secretary of Health and Human Services or Tulsi Gabbard for Director of National Intelligence, Hegseth’s nomination will first have to be confirmed by a Senate vote.
Featured image via Shutterstock