The Market wavered and Defense Stocks rose when the US bombed a Syrian air base and then an ISIS cave complex in Afghanistan. But it was not the politics of the situations or the risk of war that drove Stock prices it was projections of earnings and how such events would affect them. The quarterly earnings reports came in and stocks fell as earnings disappointed investors. Reuters notes how risk aversion hits stocks and the dollar due to poor earnings reports.

Disappointing quarterly results from corporate heavyweights Goldman Sachs and Johnson & Johnson dragged Wall Street lower.

“The key for the market is still earnings, economic growth etc, and politics is merely a daily side show,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

If a company can make money no matter what the political climate and no matter whether or not there is risk of war its stock will prosper. Companies whose profits and prospects are too closely tied to the ebb and flow of the news don’t do as well.

Will the Economy Follow the Hype?

When Trump was elected the market rallied, after a brief moment of panic. The rationale was that repatriation of offshore corporate cash, stimulus programs to rebuild American infrastructure, tax cuts and massive deregulation would greatly stimulate the American economy and drive stocks up. Trump is nearing the end of his first 100 days in office and precious little progress has been made on fulfilling any of these promises. In fact, a primary goal of Trump was to repeal the Affordable Care Act, so-called Obama Care, and that fell through. People are wondering. If the Republicans could not follow through on repealing something that they have hated for 7 years how can they follow through on the many other promises made by candidate Trump. To top that off the isolationist rhetoric of Candidate Trump has turned into foreign military adventurism with the Syrian and Afghan bombings and saber rattling against North Korea. Last November we asked how long will the market rally last?

How long the market rally lasts will depend on success of economic stimulus in the USA and world markets remaining open for US products. A full-fledged trade war would in all likelihood be the nail in the coffin of a US stock rally.

Our concern at that time was a trade war that would kill the world economy. No one thought that we would be worried about a real war with the prospect of nuclear weapons or American troops coming face to face with the Chinese Red Army again on the Korean Peninsula. Investors look at the prospect of war and the prospect of no action on Trump’s initial agenda and they see decreased profits. That is why stocks are falling.

Defense Stocks Anyone?

A fearful nation spends money on defense. Our sister site, ProfitableInvestingTips.com asked should you invest in defense stocks because of the Korean crisis.

Defense stocks have outperformed the broader market by 15% to 10% since Trump was elected.

The point of investing in defense contractors is not that their profits will go up greatly from the use of a handful of cruise missiles or from dropping one really big bomb. Rather the logic is that when the nation is worried about war it funds defense spending on projects that take years and provide a cash stream to the recipients along way and this cash stream translates into higher stock prices and dividends for you the investor.

The potential profits for defense stocks are the only bright spots in a gloomy scenario of military adventurism, war and an otherwise depressed market.