Love him or hate him, President Trump's address to a joint session of Congress last week received generally positive reviews -- and from some surprising sources. On the left, The Washington Post termed it "surprisingly presidential." On the right, the National Review deadpanned that it was "halfway decent." And in the middle, even CNN admitted the speech "boosted optimism" (whatever that means).
Punditry aside, though, what exactly did Trump have to say that was of interest to investors?
Well, there was the promise to enact "historic tax reform," for one. Many experts believe this will result in lower taxes -- and therefore higher profits -- for businesses. Obamacare is apparently on the way out, and that means further turbulence for investors in healthcare. Meanwhile, commodities investors should be heartened by the president's call to spend $1 trillion on rebuilding American infrastructure, which promises to boost the fortunes of companies selling everything from steel to cement.
And for defense investors? President Trump actually touched on the subject of defense several times. For example:
I directed the Department of Defense to develop a plan to demolish and destroy ISIS. ... We will work with our allies, including our friends and allies in the Muslim world, to extinguish this vile enemy from our planet.
No mincing of words here. The president clearly doesn't like ISIS, and he's promising to spend a lot of money on bombs and missiles to put an end to the terrorist group.
How much might that cost? It's hard to estimate, but we know that the early stages of the air war against ISIS cost the U.S. Air Force several million dollars per day to sustain. And if you keep a close eye on Pentagon contract announcements (as we do), you've doubtless seen multiple instances over the past few years, in which the Pentagon has placed big orders (sometimes $1 billion and up) for new bombs and missiles to replenish stockpiles depleted in the air war.
I am sending the Congress a budget that rebuilds the military, eliminates the Defense sequester, and calls for one of the largest increases in national defense spending in American history.
For defense investors, this was probably the most important line of the night. The president is asking Congress to allocate an additional $54 billion in defense spending to the U.S. military -- a 10% increase over fiscal 2016 funding.
In particular, Trump has called for the creation of a 350-ship navy, urged an expansion of the nuclear arsenal, and expressed enthusiasm for Boeing's development of a new fighter jet "comparable" to Lockheed Martin's (NYSE:LMT) F-35 stealth fighter.
Translation: More money for military shipbuilders (Huntington Ingalls (NYSE:HII) and General Dynamics (NYSE:GD) are our two biggest), for nuclear-missile makers (that's Aerojet Rocketdyne (NYSE:AJRD)), and of course for Lockheed Martin and Boeing (again).
We've saved taxpayers hundreds of millions of dollars by bringing down the price of the fantastic new F-35 jet fighter.
Speaking of Lockheed Martin and Boeing, candidate Donald Trump was an outspoken critic of Lockheed Martin's F-35 fighter jet, calling it "not very good." President Trump circa January 2017 wasn't much of a fan, either, suggesting it should be replaced by Boeing's plane. But President Trump circa March 2017?
He loves the F-35 -- simply adores this "fantastic new" plane. And that sounds like good news for LockMart.
We expect our partners, whether in NATO, in the Middle East, or the Pacific -- to take a direct and meaningful role in both strategic and military operations, and pay their fair share of the cost.
Our final Trump quote today is a bit of a wild card, because there are two ways of looking at this statement: First, from an "America first" perspective, the president has clearly had it up to here with allies who pawn off to the U.S. their responsibilities to maintain global security.
Trump has spoken several times already about his desire for NATO countries, in particular, to live up to their stated objective of spending at least 2% of national GDP on defense. Currently, only five countries within the 28-nation alliance do so -- Estonia, Greece, Poland, the United Kingdom, and... us. So what happens if he continues to press on this issue?
Logically, increased defense spending by other nations within the alliance would reduce the need for the U.S. to spend more -- which might sound like bad news for U.S. defense contractors. On the other hand, there's every possibility that those other nations, in spending more on defense, will buy their weapons from U.S. defense companies (or at least, local subsidiaries of U.S. defense companies).
Whether it's heads we spend big on defense, or tails our NATO allies do -- either way, chances are good that American defense contractors will still "get paid" in the end.