At the start of the year, Argus Research identified 10 Investment Themes for 2025. A lot has changed since January 1, with the Trump administration rolling out its trade and cost-cutting agenda. Our themes transcend policies and reflect broad economic and global trends. This week, we take a deep dive into Argus 2025 Theme 8, Aerospace and Defense. Years of under-investment in commercial aircraft and military equipment, coupled with a resurgence in airline travel and recent geopolitical tensions, bodes well for the aerospace and defense industry. On the defense side, we expect solid U.S. government military spending over the next few years as our country looks to counter recent technical advances in the arsenals of adversaries. No doubt, the U.S. budget will also replenish equipment sold to other countries as well. According to the Congressional Budget Office, the proposed 2025 defense budget is $850 billion. International orders will increase the amount spent globally on defense as Donald Trump has pushed foreign allies to fulfil their share of defense spending. These international orders generally come with higher margins for U.S. defense companies, giving them a boost in profitability. On the commercial aircraft side, the recovering global airline industry should help to boost commercial aerospace demand. The global passenger projection for 2024 was about 9.5 billion, or 104% of the 2019 level, representing 10% growth from 2023. We expect this number to continue accelerating in 2025 as lower interest rates put more money in the pockets of consumers and the Trump administration enacts policies to lower the price of petroleum products, including aviation fuel. We look for increased investment in new aircraft as aerospace companies modernize their fleets amid cuts in all but the most-crucial expenditures since the COVID-19 pandemic. Maintenance, repair, and overhaul services (MRO) also should provide tailwinds for companies in the industry, given the recovery in airline flight hours. Record backlogs in aerospace and defense, coupled with the resolution of the machinist strike at Boeing last fall, should also help to drive sales. This week, our list looks at companies in the Aerospace and Defense industry that should benefit from the above trends. All of the below stocks currently are on the Argus BUY list.

The major indices closed with nice gains on Wednesday, but well off the highs achieved earlier in the session. The S&P 500 (SPX) gained 1.4%, the S&P 100 tacked on 1.7%, the Nasdaq rose 2.3%, and the Nasdaq 100 (QQQ) added 2.1%. So it shouldn't be hard to tell what sector led. Yes, it was Information Technology (XLK), with a 3% jump and broad industry participation. Consumer Discretionary was second, rising 2.4% due to a 5.5% gain is TSLA, while Communication Services added 1.7% on gains in GOOGL and META. Chart provider StockCharts has a proprietary system known as SCTR, or the StockCharts Technical Rank. It is a relative strength metric that rates a stock's technical strength against its peers. Stocks are assigned a score based on six key indicators covering different timeframes. Within the S&P 500, the strongest 10% are ranked from 90 to 99.99, while the weakest 10% are scored from 0 to 9.99. These rankings tell a story that should be obvious to anyone that follows the market closely. The three highest-ranked sectors are Consumer Staples (88), Utilities (79), and Financials (72). That's certainly not the type of leadership one would prefer and is reminiscent of defensive posturing during an ongoing correction/bear market. The weakest are Information Technology (7), Materials (12), and Energy (13). Drilling down, the weakest IT industries are renewable energy (6) and semis (12). While not impossible, it will be tough for strong returns from the majors unless Information Technology gets off the mat. (Mark Arbeter, CMT)

Well, we've finally reached "Liberation Day" and will see if the stock market has discounted all the rumors. Is it time to buy the news, or is the tariff bite worse than the tariff bark? Will the S&P 500 (SPX) break to new corrective lows, possibly heading a lot closer to 5,000 before we see 6,000 again? We continue to lean toward a contrarian bullish outcome, this as sentiment is abysmal and it seems like the majority of the investment world is looking for and preparing for the worst. In addition, about 60 of the stocks in the SPX have fallen between 15% and 44% so far in 2025, meaning that there already has been quite a washout in many names. One thing aiding stocks is the drop in Treasury yields and the patterns they have been tracing out over the past five months. The 10-year has dropped from 4.39% to a close on Tuesday at 4.16%. The five-year has fallen from 4.12% to 3.91%. While the declines are small, both maturities are potentially tracing out head-and-shoulders tops. The neckline for the 10-year is in the 4.1%-4.2% area, with the left shoulder, the head, and the right shoulder completed. A break of the neckline could open the door for an initial measured move to 3.7%, and maybe down to 3.5%. The most-recent closing low was in September 2024 at 3.62%. The five-year may have broken its neckline already, as it is difficult to draw a horizontal line because the recent low of right shoulder is below the low of the left shoulder low. Anyway, it's possible the five-year drops to the 3.4%-3.5% area. The recent low from September was 3.4%. The one negative about falling rates is that they imply a weakening economy. (Mark Arbeter, CMT)

The ongoing story during this downdraft is that the stock market is just not seeing bidders as prices cascade lower. On Monday, the S&P 500 (SPX) fell 2.7% and the Nasdaq and Nasdaq 100 were off about 4%. The "500" slid through the 50% retracement and chart support in the 5,650 region like it wasn't even there. Wall Street firms are pulling their bullish 2025 outlooks as fast as Saquon Barkley cuts through defenses. The SPX also fell through its 50-week average for the first time since one week in October 2023. The next area of key support comes from a 61.8% retracement of the rally from August until the recent all-time closing high in February, near 5,510. The index has completed a double top on the weekly chart, which is not that common. A measured move based on the size of the pattern initially targets 5,500 and then 5,400. The index is now below its 13-, 26-, and 40-week moving averages for the first time since October 2023, which sometimes can lead to much deeper downside moves. Still, to confirm longer-term damage, we need the 13-week to break both the 26- and 40-week and the 26-week to cross below the 40-week average. The SPX also has (very quickly) broken below its lower weekly Bollinger Band, again for the first time since October 2023. That sets up the potential for a fairly reliable buy signal if the index can reclaim the lower band. While the percentage of SPX stocks above their 200-day has fallen close to danger territory (47%), we are seeing other breadth measures tracing out higher lows as price moves to new lows. (Mark Arbeter, CMT)