`Bolton Trade' Triggers Rallies in Defense, Energy: ETF Watch

(Bloomberg) -- Call it the “Bolton Trade.”

Shares of U.S. energy producers and defense contractors rallied as the broader market slipped the day after U.S. President Donald Trump tapped John Bolton, an outspoken Iran hardliner, as his national security adviser.

“It’s a reaction to a more hawkish approach John Bolton might bring to the table,” said Ernie Cecilia, the chief investment officer at Bryn Mawr Trust Co. “If you had someone in that position who would be championing a more aggressive approach to areas of the world that are more problematic, it would seem to eventually lend itself to higher defense spending and more demand for aircraft, defense aircraft, and armaments.”

The $5.7 billion iShares U.S. Aerospace & Defense ETF, ticker ITA, advanced 1.5 percent as of 1:10 p.m. in New York for its biggest gain in a month, as the S&P 500 Index slumped for a third straight day. State Street Corp.’s $1.3 billion SPDR S&P Aerospace & Defense ETF rose, as did the $90 million Direxion Daily Aerospace & Defense Bull 3x Shares, which climbed the most in two weeks.

The S&P 500 Aerospace and Defense Index is having its best day since Feb. 15. The gauge includes Northrop Grumman Corp., Lockheed Martin Corp. and Raytheon Co., all of which are up more than 3 percent Friday. Even Boeing Co., the No. 2 defense contractor after Lockheed, is up on the day, after getting pounded Thursday because of the trade-war concerns.

Meanwhile, energy funds are up for the week, even as the S&P 500 is down more than 4 percent. The 31-member S&P 500 Energy Sector Index was one of the few industry groups to show gains Friday, and Chevron Corp., Exxon Mobil Corp. and ConocoPhillips are all on the rise with oil climbing. The $3.9 billion Vanguard Energy ETF, ticker VDE, and the iShares U.S. Energy ETF, ticker IYE, are both outperforming this week.

Although some of those gains could be due to easing concerns over a prior ruling by the Federal Energy Regulatory Commission on master-limited partnerships, the Bolton trade is likely giving them a boost as well.

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