DEFENSE

A $10T Military Modernization Could Be Coming For Western Countries — Here’s What It Means

Recent events like Russia’s invasion of Ukraine and Hamas’ attacks on Israel signal more than just geopolitical tensions. According to Jennifer Welch, Bloomberg Economics’ Chief Geoeconomics Analyst, these incidents mark the end of an era, saying that the “post-Cold War ‘peace dividend’ is coming to an end.”

The world is growing increasingly chaotic — with 200 active conflicts since 2018 (up from 125 in the five years prior). And the world’s next big disturbance isn’t a matter of “if” but “when.” Preparing for the unexpected could be expensive…

$10T war fund: Global defense spending hit a record $2.2T last year — and is expected to rise further. Bloomberg Economics estimates that Western countries, including the US and Group of Seven (G7) nations, may need over $10T in additional military funding over the next decade to modernize their forces.

• Defense officials say NATO members may need to double their defense spending from 2% to 4% of GDP, echoing Cold War-era levels (BBG).

• The spending would aim to catch up with Russia, which now spends 4.4% of its GDP on defense — and China, which will raise defense spending by 7.2% this year.

Following the fear

Despite boasting the largest military budget globally, the US plans only a 1% increase in defense spending this year. Unsurprisingly, it’s Europe that has begun to embrace defense spending — driven by its proximity to conflicts like those in Ukraine and Israel.

• Since Jan. 2022, European defense spending has surged to $388B, boosting the order backlogs of major defense contractors to over $300B — helping six of the region’s seven largest defense contractors double.

• As a result, Rheinmetall ($RNMBY), Saab ($SAABY), Leonardo ($FINMY), Rolls-Royce ($RYCEY), Kongsberg Gruppen ($KBGGY), and BAE Systems ($BAESY) have become the world’s best-performing defense stocks.

Meanwhile, in the US: Domestic defense stocks have lagged behind the market as their individual earnings disappoint. Instead, investors are more optimistic about their “commercial aerospace and business travel” segments, according to Barron’s. And after splitting its energy and aerospace businesses, analysts are getting bullish on the new GE Aero ($GE).

Read: Learn how GE is revamping its future with strategic spin-offs.

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LARGECAP RECAP

🏭 Americans to pay more as US manufacturing expands

“America First” might sound great in principle… but is it great in practice? While politicians and businesses are pushing for more domestic manufacturing to create millions of new jobs, economists and companies warn that “Made in the USA” will come with a downside — higher labor and input costs, which will trickle down to Americans in the form of higher prices.

• Both presidential candidates, Donald Trump and incumbent Joe Biden, have emphasized the importance of buying American-made products during their campaigns.

• At the same time, employers are increasingly favoring reshoring given the tenuous geopolitical situation overseas, as well as rising manufacturing costs in countries like China.

Manufacturing momentum: A new study says the US manufacturing industry could need 3.8M workers by 2033 to accommodate the growth. The sector returned to growth for the first time in 16 months, as indicated by the ISM manufacturing index (which measures manufacturing economic activity), surprising analysts with its highest reading since Sept. 2022.

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Markets & Economy

Study finds racial bias in hiring: A recent study sent out 80K resumes to analyze hiring practices. Results show that employers reached out to white applicants 9.5% more than Black applicants — most pronounced in retail and automotive industries. Grocery stores and shipping companies discriminated much less. [Read]

US small business confidence at 11-year low: Small business owner sentiment remains below the 50-year average for the 27th straight month, with a quarter of respondents citing inflation as their biggest hurdle. Many businesses are raising prices, though some are also increasing wages. [Read]

Hybrid work is now more popular than remote work: Fully remote work has declined, with only 21% of workers now working from home full-time, down from 27% in 2022). Generally, hybrid seems to be the sweet spot, with employees feeling more engaged. [Read]

Business & Wealth

Trump’s Truth Social shares plummet: After a hot debut, Trump Media ($DJT) fell 40% in April after investors learned the company posted big losses. Trump may sell shares to fund his campaign, though that comes with some restrictions. [Read]

Google ($GOOG) updates “Find My Device” feature: Now you can find that missing Android device even when it’s offline — and some phones can now be found even if the battery’s dead. Support for locating headphones is also on the way. [Read]

South Carolina-Iowa was the most watched basketball game since 2019: That includes men’s games, women’s games, pro or college — 18.7M fans tuned in, an 89% jump from last year’s (already record-breaking) final. This year, phenom Caitlin Clark came up short against a dominant 38-0 South Carolina squad. [Read]

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DIGIT OF THE DAY

That Subscription You Forgot To Cancel Is Eating a $1K Hole In Your Annual Budget

If you've ever scrolled your recent transactions only to find subscriptions you didn't even know you had, you’re not alone. Many of us fall victim to “subscription creep,” which quietly drains our wallets. Forgetfulness isn’t the only culprit; subscription services have hiked prices, leading a quarter of people to cancel one or more subscriptions.

• According to CNET, US adults spend an average of $91 per month on subscriptions, with the most common subscriptions including streaming/video (60%), e-commerce sites (37%), and music (35%) as of Mar. 2023.

• ~48% of respondents confess to signing up for free trials and forgetting to cancel — with Millennials (65%) and Gen Z (59%) being the most forgetful.

How to keep the (subscription) creep away: Subscription services don't make it easy to cancel plans as they're designed to keep subscribers from remembering to unsubscribe, similar to how casinos hide their exits. That's why people are setting monthly reminders or using third-party payment services like Apple or PayPal that send out payment receipts, making it easier to track subscriptions. Additionally, strategies such as hunting for deals, pausing subscriptions, and bundling services are becoming popular ways to fend off “subscription creep.”