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August 26, 2019Loren B. Thompson, Ph.D

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Five Reasons An Economic Recession Could Be Bad News For The Defense Industry (From Forbes)

August 26, 2019Loren B. Thompson, Ph.D

There is a longstanding theory that defense stocks are an effective hedge against recessions because the defense business does not follow the rhythms of the commercial business cycle. However, every recession is different, and if one were to begin over the next year, it could have negative consequences for the defense sector. First, President Trump would be less likely to win reelection. Second, a recession would increase budget pressures. Third, if the budget were cut, weapons spending would likely take a hit. Fourth, contractors are constrained in supporting the weapons they have already delivered. Fifth, selling weapons overseas would be harder if U.S. allies too were experiencing weak economies. Defense stocks have outperformed in past recessions, but there’s no guarantee that will happen every time. I have written a commentary for Forbes here.

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