Defense Stock Rally Teeters as Trump’s Plans Encounter Reality

These should be lush times for those who profit from conflict. Global tensions are rising while President Donald Trump promises the most spending on U.S. troops and military hardware since Ronald Reagan’s buildup of the 1980s.

Instead, a post-election defense-stock rally is sputtering as concerns grow that dysfunction and division in the Republican-controlled government could thwart that plan. It’s another Trump trade at risk of being undone by congressional leaders ill-schooled in the art of compromise and by fiscal conservatives, who may insist on maintaining spending caps set under President Barack Obama.

Lawmakers still haven’t approved a fiscal 2017 budget as a government shutdown looms this month. The easiest solution would be to extend for the full year a temporary measure known as a continuing resolution that holds funding at 2016 levels. Doing so would starve funding for new ships, bombers, missiles and helicopters built by companies like Lockheed Martin Corp., Boeing Co., General Dynamics Corp., Raytheon Co. and Northrop Grumman Corp.

Analyst Douglas Harned offers a blunt assessment: During the next six months to a year, the news for defense investors “is more likely to be bad than good, as it becomes clear that the president and Congress will be unable to bring a budget together that significantly increases defense spending.”

Best-Laid Plans

The S&P 500’s defense group has notched a 15 percent gain since Trump’s Nov. 8 victory, outpacing the broader market. But half that run-up came in the first week after the election, when big Pentagon spending increases seemed like a slam dunk. The group has been a middling performer on the broader index, which is led by a 34 percent gain for casinos and gambling companies.

“Irrational exuberance has waned after year-end 2016 euphoria,” Robert Stallard, a defense analyst with Vertical Research Partners, said in a report to clients Monday. “A…

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