By CHRIS ILLING
This week was a dramatic rollercoaster ride on Wall Street. On Wednesday, after the US Federal Reserve (Fed) meeting, the stock markets celebrated their best day since 2020. Panic sales then spread on Thursday. The Dow Jones index of standard values fell 3.2 percent to 32,982 points on Thursday. The broader S&P 500 fell 3.6 percent to 4,146 points. The Nasdaq technology exchange index lost 5.1 percent to 12,319 points by the close of trading in New York.
It was the worst day this year. Cryptocurrencies were also affected by the bad mood. Bitcoin, the largest and oldest digital currency, lost eleven percent on Thursday and was priced at $35,600. It was the biggest price slump since January, although just a few months ago, Bitcoin was touted by some investors as a good protection against rising inflation.
And the downward trend continued Friday even though the Job Market report in the US was very positive.
But where there are losers, there are also winners.
Defence stocks have out-performed the global market this year on expectations of higher military spending by western governments and as ethically minded investors re-evaluate the sector.
Amid the Ukraine war, the arms manufacturers have reported rising profits. Rheinmetall (RHM. DE) announced on Friday in Düsseldorf that the company raised their operating results by 8 million euros to 92 million euros compared to the same period last year, Net profit increased by 3 to 61 million euros. Sales, on the other hand, remained roughly the same at around 1.3 billion euros. The company’s share price is up 142% year-to-date. The armaments company Heckler & Koch (MLHK. DE), which, in contrast to the tank and artillery manufacturer Rheinmetall, only produces handguns, also made more profit at the beginning of the year. Share price for H&K.DE is up 42% year-to-date.
Despite the stagnation in sales, Rheinmetall CEO Armin Papperger still expects a strong growth spurt of 10 to 15 percent for the year. The prerequisite for this is that Germany, as planned, provides an investment package of a good 100 billion euros to bring the German military into shape by purchasing weapons and other armaments. These purchases would take several years.
Rheinmetall’s order books are filling up. In the artillery and ammunition division, for example, incoming orders increased fivefold in the first quarter to 1.1 billion euros. A major ammunition order from Hungary, worth several hundred million euros, played a central role here.
Shortly after the Russian attack on Ukraine, Rheinmetall presented a list of military products that were relatively quickly available, including tanks, trucks, and ammunition. The Düsseldorf arms manufacturer hopes that the federal government will access at least part of the product list. In addition, given the threat posed by Russia, Rheinmetall is likely to receive more orders from other countries. The armaments group wants to deliver armored personnel carriers and battle tanks to the. Company boss Papperger rated the quarterly figures on Friday as proof that Rheinmetall is continuing its successful course.
Both companies are recruiting staff. Heckler & Koch had 1086 employees at the end of March, 58 more than a year earlier. In the Rheinmetall Group, the number of full-time employees rose by 1,038 to 20,700 within a year.
The US-based arms manufactures are experiencing the same war effect. Lockheed Martin (LMT. US) had a very solid last six months and their share price rose by more than a third year-to-date.
Raytheon Technologies (RTX.US), the US defence giant and maker of the Stinger ground-to-air missile that Germany has pledged to supply to Ukrainian forces, has seen its shares price increase more than 10% year-to-date.
Defence contractor Northrop Grumman beat earnings estimates for the first quarter of 2022 and predicts faster growth later in the year. The company is optimistic about the future impact of the B-21 Raider programme which is a next-generation, nuclear-capable, long-range strategic bomber being developed by Northrop for the US Air Force. The companies share price is up over 20% year-to-date.
This market sector might be a good hedging opportunity for the savvy investor.
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