What Happened?
Shares of aerospace and defense company Mercury Systems (NASDAQ: MRCY) jumped 5.6% in the afternoon session after the broader defense sector rallied following President Donald Trump's call for a significant increase in the U.S. military budget.
The sector-wide surge came after Trump posted on social media that he wanted to boost the country's military spending to $1.5 trillion. The proposed increase in defense spending caused investors to rush back into the sector, lifting shares of U.S. defense contractors. The positive sentiment was widespread, as an index tracking European aerospace and defense companies also climbed around 2% to a new all-time high.
After the initial pop the shares cooled down to $89, up 5% from previous close.
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What Is The Market Telling Us
Mercury Systems’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 23 days ago when the stock dropped 3.9% on the news that speculation grew that the conflict between Russia and Ukraine might be nearing a resolution, impacting the broader defense sector.
This news led to a sell-off in defense-related stocks, as investors anticipated a potential decrease in military spending. An end to the nearly four-year conflict was viewed as having negative consequences for the defense industry, which often sees heightened demand during periods of geopolitical tension. The prospect of peace prompted profit-taking among defense contractors, contributing to the downward pressure on share prices across the sector.
Mercury Systems is up 17.1% since the beginning of the year, and at $89 per share, has set a new 52-week high. Investors who bought $1,000 worth of Mercury Systems’s shares 5 years ago would now be looking at an investment worth $1,115.
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