Shares of defense companies and government contractors were lower on Friday, extending recent losses amid uncertainty surrounding President-elect Donald Trump’s proposed Department of Government Efficiency.
Trump, a Republican who won last week’s election against Democratic Vice President Kamala Harris, this week named Elon Musk and former Republican presidential candidate Vivek Ramaswamy to co-lead the proposed efficiency department, an entity Trump indicated will operate outside the confines of government.
Among defense contractors, shares of General Dynamics fell 1.5% on Friday, while Lockheed Martin was off 0.8% and Northrop Grumman was down 1.3%.
The S&P 500 Aerospace & Defense index was down 0.6%.
Changing inflation expectations are visible in the bond market, where the U.S. 10-year Treasury yield has ticked up to its highest since July.
Traders now expect a 79.1% chance of a 25-basis point reduction at the Federal Reserve’s December meeting, down from 82% prior to the data, according to the CME FedWatch tool.
The Dow Jones Industrial Average fell 14.77 points, or 0.03%, to 43,943.42, the S&P 500 lost 4.30 points, or 0.07%, to 5,981.08, and the Nasdaq Composite lost 10.19 points, or 0.05%, to 19,220.53.
The blue-chip Dow was buoyed by a 7.1% gain in Walt Disney after the entertainment giant reported quarterly earnings that beat Wall Street’s estimates and offered robust guidance for the coming years.
Consumer discretionary stocks weighed on the S&P 500. EV maker Tesla declined 2.5%, while Amazon.com was down 0.7%.
Powell will provide an update on his economic outlook to business leaders in Dallas, a day after some Fed policymakers shifted their attention back to inflation risks as they weighed when, and how fast and far, to cut interest rates.
Shares of government contractors also continued their recent slide on Friday, including Leidos Holdings, which was down 4.4%; Science Applications International, which was down 2.8%; and Booz Allen Hamilton, which fell 3%.
General Dynamics was down about 7% for the week, while Leidos fell 19%. Both stocks suffered their biggest weekly percentage drops in more than four years.
JP Morgan analysts wrote in a research note Thursday that the trigger for the decline in the government contractors’ shares signals concern about the efficiency department “and how it may result in budget cuts and policy changes that reduce contractor earnings.”
The Musk and Ramaswamy picks were among some others this week by Trump, including Robert F. Kennedy Jr. to lead the Department of Health and Human Services and Pete Hegseth to be secretary of defense.
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