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Here's Another Sign That Investors Are Totally Unconcerned About Defense Budget Cuts

Walter Hickey

Defense stocks have actually outperformed the S&P 500 since the start of the year, a sign that investors are relatively unconcerned about the effects of the sequester budget cuts on the military-industrial complex. 

Compiled by Sober Look, t he chart below looks at the year-to-date performance of the S&P 500 (red) against the  iShares defense industry ETF (ITA, blue), which is a composite index of defense stocks.

See a difference?

Neither does Tyler Cowen at Marginal Revolution, and the general idea is that investors by and large haven't priced in risk as a result of the implementation of sequestration into the price of defense stocks. 

While ITA underperformed the S&P earlier this year — during the uncertainty period — for whatever reason, they are now outpacing the S&P. 

This likely means one of two things:

  • Investors in defense stocks don't think sequestration will seriously damage the defense industry;
  • Or, investors expect that sequestration will be replaced or rolled back at some point in the foreseeable future. 

It's also conceivable that it is a little of both. 

That reaction is a far cry from the doomsday rhetoric that the White House and the Pentagon have been spouting for the past few weeks, as they warn that the sequester could have long-term consequences on American military readiness. 

Read the original post on Sober Look.

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