I have no idea who is going to win the 2024 presidential election. I don’t even know how long it will take to count all the votes and settle all the legal battles.
What I do know, though, is that regardless of who’s elected president, defense contractors and defense stocks will be the real winners.
The United States spent $916 billion on defense last year and it’s set to spend $923 billion in the current year. That trend is likely to continue in the next few years, ultimately reaching $1 trillion during the next administration.
There are a few reasons for this…
Trump vs. Harris on Defense
Both presidential candidates have lofty goals for defense. Kamala Harris has pledged to stand firm with U.S. allies like Ukraine and Israel. Donald Trump is less consistent but still eager to project strength abroad and shore up defenses at home.
Trump’s first administration brought record defense spending, robust foreign military sales, and a tidal wave of profits to the defense industry. He’s given no indication that things would be different the second time around.
Joe Biden further advanced the trend of record defense outlays, while Russia’s invasion of Ukraine and Israel’s war against Hamas further accelerated foreign military sales.
Sales of American weapons, ammunition, and equipment to foreign countries climbed 55% last year to a record-high $81 billion. And 2024 is shaping up to be another banner year.
Again, Ukraine was the main catalyst for this surge, followed by the terror attack that set off a string of armed conflicts throughout the Middle East.
Now, aid to Ukraine will not survive another Trump administration. Trump has made it clear he plans to abandon the country and truly all of Europe. He’d likely try to abandon NATO altogether.
However, that will still result in a massive spike in foreign military sales as European countries scramble to build up their arsenals to compensate for America’s withdrawal.
Meanwhile, both Harris and Trump maintain an unwavering commitment to Israel. And the conflicts swirling around the Middle East are now spiraling out of control.
Iran and Israel have all but declared war on one another. Gaza and Lebanon are in shambles. Syria is in the mix. Saudi Arabia has been loading up for years. It’s a mess.
There’s just no way any of this is going to get cleaned up in the next year — or even the next four years.
If Harris gets elected, Ukraine’s resistance could continue to hold up against Russian aggression indefinitely. If Trump abandons Europe, it will be chaos.
Israel and Iran will never be friends. There’s just no room for reason over that at all.
And on top of it all, we’ve still got China looming over the Pacific, lashing out over the South China Sea and Taiwan.
Modernization and Manufacturing
Amid this global backdrop, there are two main initiatives driving our domestic defense spending.
The Pentagon is scrambling to both modernize its war-fighting capabilities and reinvent its entire supply chain.
It’s pouring billions of dollars into fifth-generation aircraft, drones, satellite constellations, cloud computing, edge computing, directed-energy weapons, hypersonics, missile defense systems and more.
It’s also trying to rebuild a manufacturing base that was left to atrophy in the decades following the Cold War.
Indeed, one of the major lessons learned from America’s effort to rescue Ukraine is that we lack the capability to manufacture weapons and ammunitions as quickly and efficiently as we need to.
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That’s because defense contractors for decades lacked the long-term contract guarantees they needed to maintain production lines. Plants and factories were closed. Workers were let go. And now that we need them, they’re simply not there.
That’s led to massive delays in defense production and deliveries. It’s something the Pentagon is acutely aware of and working doggedly to address.
These efforts will continue to underpin U.S. defense spending regardless of who’s president, what their foreign policy looks like, or what further horrors unfold abroad.
And if you think a $1 trillion defense budget sounds like a lot, I’ve got news for you…
It kind of isn’t.
If you calculate for things like inflation or benchmark spending as a percentage of GDP, the United States is still spending less on defense than it has in decades.
Even at ostensibly record-high levels, the current level of U.S. defense spending equates to just 3%–4% of GDP. That’s well below previous periods of global unrest — like the post-9/11 war on terror era, the Cold War, the Vietnam War, the Korean War, and certainly WWII.
So there’s actually a bigger ceiling for Pentagon spending than you might think.
A trillion dollars is just the start.
That’s why I continue to recommend stocks like Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD), Northrop Grumman (NYSE: NOC), and RTX (NYSE: RTX), among others.
And you can find even higher-flying defense tech in my latest report for Secret Stock Files.
These stocks have all soared amid global chaos and record-high defense budgets. They’re going to continue to do so for the next four years at least.
Fight on,
Jason Simpkins
Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more...
In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor's page.
Be sure to visit our Angel Investment Research channel on YouTube and tune into Jason's podcasts.
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