It’s an election year and one of the long-held norms alive and well in America is micro-redistribution. Rather than the very top-down versions present much of the previous two years, this version is tied to the large programs and smaller “earmarks” members of Congress directly influence. The practice had gone out of vogue during the Obama and Trump presidencies or required tremendous Houdini-like sleight of hand in appropriations and tax legislation.
Momentum remains on the upswing to enact FY22 appropriations. Some proponents want the Pentagon to get the nearly $25 billion bump that a very bipartisan Congress decided was proper in the National Defense Authorization Act for 2022. There is as much as another $50 billion to fight inflation affecting fuel stockpiles and the purchasing power of service members’ pay. The slower moving bill to authorize semiconductor manufacturing also has national security implications but is unlikely to become law until later this spring. Additionally, all those grants and loans for EV battery research and charging station capacity in the Infrastructure Investments Job Act won’t flow so long as the federal government operates under FY21-extended levels permitted by the current continuing resolution.
For illustrative purposes, we include John Roque’s latest technical scoring system results for the S&P Aerospace/Defense SPDR (XAR), and its one-year price performance. All but one of the top five defense contractors earned a good/strong mark in John’s work. The exception is Boeing which is subject to headwinds in its commercial aerospace business. The group has followed the market down this year with a small bounce over the past few trading days.
Enactment of an FY22 omnibus bill is expected by mid-March to avoid the possibility of Biden accepting some of the credit for the infrastructure programs in front of a national audience during his scheduled March 1 State of the Union address. The current CR runs through February 18, and we expect Congress to extend it. It’s hard to see the process producing thorns like a shutdown when so many Democrats and Republicans are looking to deliver metaphorical roses just as midterm electoral excitement heats up.
