President Donald Trump signed the 2018 National Defense Authorization Act on Tuesday. The new bill is a $700 billion defense policy that he says will help set his promise to advance and build the military.
"This legislation represents a momentous step in rebuilding our military and securing our future for our children,” said Trump.
The $700 billion cap will not be in effect until Congress can rollback on previous laws that cap the budget spending. The cap for baseline defense funding is $549 billion, short of $635 billion set by the authorization act. The remaining $65 billion would be spent on overseas contingency operations, according to the Washington Examiner.
Military defense contractors and aerospace companies who supply the government with equipment benefit heavily if budget spending increases. It was well known during Trump’s presidential campaign that military spending increase would be a focus for him, which led major contractor companies to see stronger sales during his presidency.
Major companies in the sector include, Orbital ATK, Northrop Grumman, Lockheed Martin, Rockwell Collins, United Technologies, Boeing, Raytheon, and many others.
In the budget, Trump authorized 90 F-35’s from Lockheed Martin; 20 more than the previous budget requested, 24 F/A-18 Super Hornets from Boeing; 10 more than the previous budget, a long term goal of 355 ships from Lockheed Martin and Austal USA, missile defense systems from Lockheed Martin and Raytheon, and also increasing military personnel equipment and training.
The increased spending adds on billions and billions dollars to the proposed budget plan. Especially with growing global tensions, it is projected for aerospace and defense companies to thrive as military spending will begin to see an increase. The U.S. is also the largest supplier in military grade equipment, which will also cause major countries such as United Arab Emirates, Saudi Arabia, South Korea, Japan, and China to increase their spending.
The previous years, military budget spending was lower than the proposed budget bills that are expected to pass, causing lower sales for defense companies.
Stocks in the Zacks Aerospace sector alone rallied 29.1 percent in the last year, outperforming the S&P 500 index's 13.6 percent gain, according to Nasdaq. The market is projected to grow overall at rate of 3.2 percent for the year.