STRONG EARNINGS FOR AEROSPACE AND DEFENCE COMPANIES AREN’T GETTING REWARDED

Aerospace and defence companies have had a strong first quarter, but you wouldn’t know it from their recent share performance.

A standard gauge for the sector, the S&P 500 Aerospace & Defence Industry Index, has dropped as much as 5.1 percent this week, despite a rush of upbeat results and outlook from top industry players, including Boeing, United Technologies, Lockheed Martin, Northrop Grumman and General Dynamics. Raytheon Co. is due to report before the market opens. The broader S&P 500 Index fell 2.1 percent.

“We expect a weak tape for aerospace and defence given the market perception of an inverse relationship between defence and the 10-year, plus the general view of what higher interest rates could do to the economy,” Buckingham analyst Richard Safran wrote in a note to clients. The 10-year Treasury yield reached 3 percent, but then retreated amid a selloff in the equity market, led by industrial and technology companies.

Despite the latest rout, aerospace and defence still remains a bright spot for investors within industrials, with stock prices up more than 6 percent year to date. Shares of industrial companies overall have dropped 3.6 percent over the same period.

Source: Bloomberg

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