Taking a 'Defensive' Stance
Let's remember what Memorial Day is all about, preview the NATO summit, and examine 'Golden Dome' opportunities for L3Harris, Northrop Grumman, Lockheed Martin, Palantir, RTX and more.
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Rouge Bouquet (excerpt)
For Death came flying through the air
And stopped his flight at the dugout stair,
Touched his prey and left them there,
Clay to clay.
He hid their bodies stealthily
In the soil of the land they fought to free
And fled away.
Now over the grave abrupt and clear
Three volleys ring;
And perhaps their brave young spirits hear
The bugle sing:
"Go to sleep!
Go to sleep!
Slumber well where the shell screamed and fell.
Let your rifles rest on the muddy floor,
You will not need them any more.
Danger's past;
Now at last,
Go to sleep!"
-Sgt Joyce Kilmer (NY Fighting 69th Infantry), KIA July 30th, 1918
On Memorial Day...
By all means, celebrate the day, and celebrate the weekend, but respectfully. The day is an observance of those who sacrificed everything so that we might not. Let us honor their memory, by accepting this bounty with both grace and class. It is not "Happy Memorial Day," for there is nothing "happy" about tragic loss. It is, however, "Have a nice Memorial Day," as that still allows for fun and family time while not disrespecting the how, the why and the sacrifice.
Upcoming Summit
Investors should be cognizant that NATO will hold its upcoming summit in The Hague on June 24 and 25 with dozens of heads of state and governments, and scores of defense and foreign ministers (or secretaries) and 6,000 delegates in attendance. On Thursday, U.S. ambassador to NATO Matthew Whitaker appeared on Bloomberg TV and urged members of the post-WWII alliance to outline a path toward dedicating 5% of gross domestic product toward defense. Whitaker stressed that the 2% of GDP pledge adopted in 2014 is no longer (and perhaps never was) sufficient.
Whitaker commented, "We need to have clear steps to meet those goals." A leading proposal going into the event calls for the allocation of 3.5% of GDP toward direct defense (combat ready equipment, infrastructure, and personnel) spending and 1.5% of GDP toward strategic research and development. The proposal calls for member nations to hit these spending targets by the year 2032.
'Golden Dome' Spend
Just this week, Pres. Trump's ambitious (to say the least) missile defense initiative known as the "Golden Dome" has been in the news. According to administration officials, the program is projected to cost a far less than expected $175 billion, which will include $25 billion already earmarked for 2025. General Michael Guetlein of the U.S. Space Force will lead the project.
Is the money being talked about on the light side? Almost certainly. This is not that fight. For investors, this is about the project moving forward, which it is. The system, upon completion, will be expected to defend the U.S. homeland against attacks from ballistic and cruise missiles as well as hypersonic missiles and also drones. This is key because modern warfare is fought with drones and hypersonic missiles are currently impervious to anything in our arsenal.
Top funding priorities will be focused on land, sea and space-based interceptor technologies, space-based sensors and laser weapons. The target date for deployment is currently the end of this presidential term. That timeline is probably not realistic as most of these areas of focus are newly created or nascent technologies and not simply refinements of well-developed systems already in existence.
Investment ideas would be L3Harris LHX for their work on interceptor rocket motors, while Northrop Grumman NOC and Lockheed Martin LMT are already working on next-generation interceptors. I like NOC more than LMT right now, but that is just my opinion. RTX RTX, which is the old Raytheon, is also a player for that firm's work in developing missile defense radars, some of which are already in use.
Ultimately, AI services could be provided by the likes of Palantir Technologies PLTR. I would not be surprised to see Snowflake SNOW ultimately compete in this space. Kratos Defense KTOS could also be heavily involved on the drone / hypersonic side. Launch services could be (again, opinion) provided by firms like SpaceX and even Rocket Lab USA RKLB as recent history might steer the DoD toward diversification in contract awards and place less reliance upon firms like Boeing BA.
Funny Thing About the 'Big, Beautiful Bill'
Everyone seems to "know" that the "big, beautiful bill" will add as much as $5 trillion to the U.S. budget deficit over the next ten years....
.... But oddly ... nobody seems to have read that the Penn Wharton model is projecting that President Trump's tariffs are projected to generate between $4.5 trillion to $5.2 trillion in revenue for the U.S. Treasury over the next 10 years. The Tax Foundation estimates that a 10% flat tariff (ex-reciprocal tariffs) would raise $2.2 trillion for the Treasury Department between 2025 and 2034.
I understand that where tariffs end up is unknown, but the Congressional Budget Office did not include any offset for tariff driven revenue whatsoever in their estimate for the deficit increase created by the big, beautiful bill. Just an FYI.
On Trade
The U.S. and China have agreed to keep talking and to keep open the lines of communication following a call on Thursday between senior officials from both sides. U.S. Deputy Secretary of State Christopher Landau chatted with Chinese Vice Foreign Minister Ma Zhaoxu on a variety of issues, with neither side explaining specifically what was discussed.
Separately, JP Morgan JPM CEO Jamie Dimon met on Thursday with Chinese Vice Premier He Lifeng on Thursday. Supposedly, Lifeng told Dimon that negotiations with the US have "made substantial progress."
Economics (All Times Eastern)
10:00 - New Home Sales (Apr): Expecting 693K, Last 724K SAAR.
1:00 p.m. - Baker Hughes Total Rig Count (Weekly): Last 576.
1:00 - Baker Hughes Oil Rig Count (Weekly): Last 473.
The Fed (All Times Eastern)
09:35 - Speaker: St. Louis Fed Pres. Alberto Musalem.
09:35 - Speaker: Kansas City Fed Pres. Jeffrey Schmid.
12:00 p.m. - Speaker: Reserve Board Gov. Lisa Cook.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: BAH (1.61), BKE (.69)
At the time of publication, Guilfoyle was long RTX, PLTR, RKLB equity.
