defence stocks have tumbled ever since the debt deal pledged $350 billion in defence cuts. But those cuts are just the beginning, according to UBS.
Cuts are guaranteed to reach $500 billion through FY2021 due to caps on spending. Analyst David Strauss predicts the DoD budget over the next two years will be 3% below current year. Going forward it may be limited to a paltry 2% annual increase, on pace with other discretionary spending.
Cuts could reach as high as $1 trillion, however, due to a trigger mechanism that specifies another $500 billion in defence cuts if lawmakers fail to achieve an additional $1.2 trillion in deficit reduction by December. Even if lawmakers do make those additional cuts, a portion of them will probably come from defence.
And the selloff continues…
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