Defense, Aerospace Results Ignored as Rising Yields Deepen Rout

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(Bloomberg) -- Aerospace and defense companies have had a strong first quarter, but you wouldn’t know it from their recent share performance.

A standard gauge for the sector, the S&P 500 Aerospace & Defense Industry Index, has dropped as much as 5.1 percent this week, despite a rush of upbeat results and outlook from top industry players, including Boeing, United Technologies, Lockheed Martin, Northrop Grumman and General Dynamics. Raytheon Co. is due to report Thursday before the market opens. The broader S&P 500 Index fell 2.1 percent this week.

“We expect a weak tape today for aerospace and defense given the market perception of an inverse relationship between defense and the 10-year, plus the general view of what higher interest rates could do to the economy,” Buckingham analyst Richard Safran wrote in a note to clients. The 10-year Treasury yield reached 3 percent yesterday, but then retreated amid a selloff in the equity market, led by industrial and technology companies.

Despite the latest rout, aerospace and defense still remains a bright spot for investors within industrials, with stock prices up more than 6 percent year to date. Shares of industrial companies overall have dropped 3.6 percent over the same period.

©2018 Bloomberg L.P.

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