Stocks of defense firms and government contractors declined on Friday, compounding recent losses amid ambiguity regarding President-elect Donald Trump’s suggested Department of Government Efficiency.
Trump, a Republican who triumphed over Democratic Vice President Kamala Harris in last week’s election, appointed Elon Musk and former Republican presidential hopeful Vivek Ramaswamy to jointly direct the proposed efficiency department, which Trump noted will function beyond regular government operations.
Within the defense sector, shares of General Dynamics dropped by 1.5% on Friday, Lockheed Martin decreased by 0.8%, and Northrop Grumman experienced a 1.3% decline.
The S&P 500 Aerospace & Defense index saw a reduction of 0.6%.
Shifts in inflation expectations are apparent in the bond market, where the U.S. 10-year Treasury yield has risen to its highest level since July.
Market participants are currently anticipating a 79.1% likelihood of a 25-basis point cut at the Federal Reserve’s meeting in December, a decrease from 82% prior to the recent data, as indicated by the CME FedWatch tool.
The Dow Jones Industrial Average decreased by 14.77 points, or 0.03%, closing at 43,943.42, the S&P 500 fell by 4.30 points, or 0.07%, to 5,981.08, and the Nasdaq Composite dropped by 10.19 points, or 0.05%, to 19,220.53.
The blue-chip Dow benefitted from a 7.1% increase in Walt Disney’s shares after the entertainment giant announced quarterly earnings that exceeded Wall Street predictions and provided strong guidance for future years.
Consumer discretionary stocks exerted pressure on the S&P 500, with EV manufacturer Tesla falling 2.5%, and Amazon.com declining by 0.7%.
Powell is set to share his economic outlook with business leaders in Dallas, one day after some Fed officials returned to focusing on inflation risks while contemplating when and how much to reduce interest rates.
Shares of government contractors also continued their downward trend on Friday, including Leidos Holdings, which dropped 4.4%; Science Applications International, down 2.8%; and Booz Allen Hamilton, which fell by 3%.
General Dynamics experienced a weekly drop of about 7%, while Leidos saw a 19% decline. Both stocks recorded their largest weekly percentage losses in over four years.
JP Morgan analysts noted in a research report on Thursday that the decline in government contractor shares reflects apprehension regarding the efficiency department “and its potential to trigger budget reductions and policy shifts that could diminish contractor profitability.”
The appointments of Musk and Ramaswamy were among several made by Trump this week, which also included Robert F. Kennedy Jr. to lead the Department of Health and Human Services and Pete Hegseth as secretary of defense.
