There’s no denying President Trump’s determination to strengthen the U.S. military.
Just one look at his proposed $668 billion defense budget for 2018 was proof of that.
In late June 2017, the House approved a $658 billion spending plan for the Defense Department. It included $584 billion for the base budget and $74 billion in war funding. Much of that money would go toward the National Defense Restoration Fund, an account made available to “increase end strength, improve military readiness, modernize equipment, and invest in future technology, subject to appropriate congressional oversight,” as noted by The Hill.
But evidently the U.S. Senate didn’t think that was enough.
A few days ago, the Senate announced a $700 billion defense budget deal passed by a vote of 89-8. That’s about 5% higher than President Trump’s original request.
This bill will increase spending on F-35 fighter jets, ships and M1 Abrams tanks, and raise current military pay scales by 2.1%. It’ll also authorize $5 billion for Afghanistan security forces, as well as $8.5 billion to boost U.S. missile defense systems. Better yet, it’ll provide $60 billion in war funding known as Overseas Contingency Operations.
Much like the House version, the Senate bill asks for substantial payments for massive military buildups and considerable funding to dig out of what many analysts consider to be “crisis-level readiness shortfalls,” as pointed out by Politico.
From this point, the House and Senate will form a “joint conference” to compromise on a final version of the bill. Once we have final draft, markets – especially the defense sector – could move higher. Already, some of the biggest market movers since May 2017 have included:
- Raytheon (RTN) ran from $155 to $183
- Boeing (BA) ran from $180 to $253
- General Dynamic (GD) ran from $194 to $202
- Northrop Grumman (NOC) ran from $245 to nearly $276
Even smaller-cap defense stocks like Kratos Defense (KTOS), which is involved with aerial combat drones, has seen its stock soar from a May 2017 low of $7.50 to a high of nearly $14.
The moment Congress puts together its final version of the bill, defense stocks could move even higher. In fact, we’re looking into some inexpensive defense trades for The Cheap Investor. Stay tuned for that.