Would Biden WH, GOP Senate Prevent Defense-Spending Dip?

A Biden White House mixed with a Republican Senate could signal stability for defense spending, Wall Street analysts say.

With the race between President Donald Trump and former Vice President Joe Biden still undecided, Republicans are seen as likely to keep control of the Senate while Democrats are poised to retain control of the House by a slimmer margin than they hold today. If Biden’s narrow leads in Michigan, Wisconsin, Arizona, and Nevada hold up he would win the election.

“We would see this as an unexpected-yet-good outcome for defense policy and spending,” Roman Schweizer, a Cowen & Company analyst, wrote in a Wednesday note to investors.

If Republicans retain control of the Senate during a Biden presidency, they could rebuff House members — both progressive Democrats and GOP deficit hawks —  who have called for steep defense spending cuts.

“We see this budget scenario as more positive for the defense sector than many had been expecting,” Schweizer wrote.

It could also lead to biennial budget negotiations, similar to the ones that came after the Budget Control Act was passed nearly a decade ago, Schweizer wrote. 

“This would require bipartisan negotiation to set the level of discretionary spending for defense and non-defense,” he wrote. “This could cap the downside and provide some stability by setting a floor for the two fiscal years forward.”

Citi’s Jon Raviv had a similar view of the combination of a Biden White House, Republican Senate, and Democratic House of Representatives.

“This might actually be the best outcome for defense stocks since this line-up requires domestic negotiation and compromise. That makes it tough to make big changes to anything, with the defense industry generally benefiting from the status quo,” Raviv wrote in a Wednesday note to investors. “It also puts someone in the [White House] known for domestic and international collaboration, which again can help remove some uncertainty from the system, such as depleted U.S. alliances and perceptions of faltering U.S. leadership costing export opportunities.”

Capital Alpha Partners analyst Byron Callan added in his own notes that a GOP Senate reduces the chance of increases in corporate tax rates.