Wealth Outlook 2024 - Slow then grow

64 Wealth Outlook 2024 | Opportunistic Our top 10 high conviction potential opportunities FIGURE 10 US defense shipments vs S&P Aerospace and Defense Index S&P 500 Aerospace and Defense Index US defense goods shipments ($Billions) 16 0 2,000 14 1,500 12 1,000 1 500 2022 2020 2018 2016 2014 Source: Haver Analytics as of November 22, 2023. All forecasts are expressions of opinion and are subject to change without notice and are not intended to be a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. 6. Defense contractors The tragedies unfolding in Ukraine and the Middle East see history repeating as simmering, longstanding conflicts explode into major wars once again, sowing further tensions between the major powers lining up in the shadows on either side. The division of the world again into “Western” and “Eastern” Cold War blocks has dangerous precedent. However, the arms race of the 1980s showed that deterrents work. NATO nations see no choice but to increase defense spending to avoid a larger conflict. These two wars have strained the capacity of US and European defense equipment and arms producers. Their share prices appear to reflect worries about government funding and the stress they are under as shipments of defense goods have fallen behind demand ( FIGURE 10 ). While buyer power is always a wild card in this unique segment of the market – with literally just a handful of taxpayer-supported customers around the world setting prices and all the rules – it’s hard to imagine Western defense agencies not doing almost whatever it takes to ensure these companies are able to catch up.