Investing in Defense Is the Best Offence Against the Coming Stock Market Crash
Investors have reason to fear another massive stock market crash.
More stringent privacy rules are hurting social media companies like Facebook, Inc. (NASDAQ:FB). And the big tech giants are under threat from retaliatory measures in key markets over President Donald Trump’s new tariffs.
Facebook, Netflix, Inc. (NASDAQ:NFLX), and Alphabet Inc (NASDAQ:GOOG)—also known as Google—have already suffered historic losses. And their individual negative performance can easily spread like a virus throughout Wall Street, triggering a massive stock market crash.
How can you, whether an exceptional or average investor, protect yourself from the coming slaughter?
To minimize pain in the coming stock market crash, you could defend your portfolio with more defense stocks.
Defense stocks are among the few to survive the next major stock market crash.
Don’t Worry, the Cold War Is Still On
Trump may have talked to Vladimir Putin in Helsinki. He may even have invited the Russian president to Washington in 2019.
However, the relationship between Washington and Moscow is worse now than during the Cuban Missile Crisis. And powerful people near the Capitol will ensure it stays that way. Thus, defense spending will remain a priority.
The closer Trump gets to achieving better relations with Russia, the more the Deep State will put up resistance.
In financial market terms, it means that defense companies remain the best hedge against a stock market crash.
The Best Hedge Against a Stock Market Crash
The performance of the big military contractors has pushed defense stocks to record highs over the past two years.
Anyone who has followed Lockheed Martin Corporation (NYSE:LMT), Northrop Grumman Corporation (NYSE:NOC), or any other defense contractor will have noticed that the worse relations with Russia are, the better these stocks perform.
Trump’s efforts to improve relations scare the establishment. But, in a sense, that’s not entirely bad news.
Indeed, Trump will have to boost his “military credentials,” just as President Bill Clinton had to do when the Monica Lewinsky story broke out. Does anyone remember Kosovo?
Trump actively promoted American defense contractors. He made no qualms about the fact that he’s a salesman.
NATO Is a Tool to Encourage American Exports of Military Hardware
It’s worthwhile discussing where you should be cautious about investing in the short term or midterm, given one of the riskiest aspects of Trump’s isolationist foreign policy: a trade war.
Defense sector stocks remain a source of steady returns and will continue to survive and thrive. The more strain, the better.
For all the trade tensions and differences (not that many) on international policy, Europe remains fully on board when it comes to defense spending.
In the United States, if nothing else, Russiagate will maintain a high level of alertness and popular “compliance” to the ever-rising military budgets.
All things remaining the same, defense sector stocks (or those that have some relationship with them) will continue to provide a steady, if not downright bulletproof protection against a stock market crash.
Despite the Rumors, Europe Is on Board When It Comes to Defense Spending
The European Union (EU) wants to strengthen its defense spending through the “European Defence Fund and EU Defence Industrial Development Programme” mechanism. (Source: “European Defence Fund and EU Defence Industrial Development Programme,” European Commission, last accessed July 31, 2018.)
European military contractors, all of which have relationships with the U.S. defense industry, will get more government funding.
The program might be small by American standards, but it will still add some €500.0 million toward the development of new weapons alone.
In Europe, as in the United States, the focus is on technology-intensive military equipment such as unmanned or completely autonomous weapons systems from killed robots to ever more advanced drone hardware (ships, airplanes, tanks).
The more optimistic news is that the EU Defense Fund is merely a precursor for a more ambitious program that the EU (if it survives the current political turmoil…) wants to adopt soon, devolving some €13.0 billion euros to the military industry.
This is more than the EU spends on humanitarian issues.
LMT stock reached a record high at the end of April. That’s when President Trump and North Korean leader, Kim Jong-un, were trading heavy insults and threats to obliterate each other’s capitals.
There’s Plenty of Tension to Keep Defense Contractors Busy
The military stocks dropped when it peace was on the horizon. But investors have slowly regained a sense of perspective.
More than peace, Trump wants interesting photo opportunities that deliver the true essence or message of his presidency. It’s not so much “America First” as it is “Trump First.”
Slowly, the Washington establishment and investors are realizing that North Korea and the U.S. have not agreed on anything concrete about nuclear disarmament yet. Pyongyang still has nuclear capabilities, which it could revamp at any moment.
So, don’t worry. As I’ve said before, peace isn’t breaking out just yet.