US defence industry to see shares decline after Obama re-election

The US defence industry took a battering in the stock market last week as investors decided to cash in after President Barack Obama's re-election.

Had republican candidate Mitt Romney gained victory in the Presidential vote, it was anticipated the US defence industry would see a rise in share prices as Romney has promised to enhance military spending.

However, Obama's victory will continue the sliding trend in defence spending, as the government struggles to cut budget deficits and draws down the military presence in Afghanistan.

Shares of Lockheed Martin Corp, Northrop Grumman Corp, General Dynamics Corp, L-3 Communications and Raytheon Co were down between 5.8% and 4.5% in early trading. Boeing Co shares were down 2.6%, while the Dow Jones industrial average was down 2.3%.

Lockheed Martin and other US defence contractors have been warning for more than a year that uncertainty about future budget levels is depressing investment in facilities, hiring and mergers and acquisitions.

Lockheed, Northrop Grumman, Boeing, and Raytheon told investors last month that they were focused on cutting costs and drumming up foreign sales to maintain profits, amid a long cycle of budget challenges after more than a decade of growth.

Obama's pledge in his victory speech to reach across the aisle and work with Republicans on deficit reduction fuelled hope among industry executives and defence experts that the indiscriminate $500 billion in cuts due to take effect on January 2 would be put off until the end of March when a temporary 2013 budget measure and Bush-era tax cuts expire.

However, the final compromise may still result in some additional cuts being made to the US defence industry.

For more information on the US defence industry, see the latest research: US Defence Industry

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