US defence shares surge higher on Bush victory

Defence stocks in the United States jumped higher, buoyed by expectations that President George Bush’s re-election would benefit the sector.

:: Lockheed Martin’s stock rose $1.67, or 3.1%, to $55.78 in afternoon trading on the New York Stock Exchange.

:: Boeing shares increased $1.60, or 3.2%, to $51.48.

:: Northrop Grumman surged $2.22, or 4.3%, to $53.87.

All three were near 52-week highs.

Wall Street appeared to be betting that defence firms would get more business from a second-term Bush administration than they would have under Democrat challenger John Kerry.

But Merrill Lynch defence analyst Byron Callan said yesterday in a note to investors that he foresaw cuts to the US military’s modernisation plans that would result in slower growth rates for those programmes, affecting contractors.

“We see today’s strength in stocks as more of a relief rally than a signal of new directions for the defence sector,” he wrote.

Jim Albaugh, head of Boeing’s more than 30 billion dollars-a-year defence business, told analysts that a slowdown in military procurement had begun despite “a great last five years” that saw defence spending rise sharply, particularly for development and technology.

“We have taken the position that regardless as to whether or not President Bush is in the White House or Senator Kerry was elected, we would see a moderation in defence spending in the years ahead,” he said at a Goldman Sachs conference in New York.

“I think we’re (already) starting to see a flattening of the spending on the defence side.”