DEFENSE

Defense Contractors Are Sitting On Record Order Books — And the Highest Hiring Demand They’ve Seen Since the Cold War

They say a company’s outlook can be gauged by its “Careers” page — and in 2024, this holds especially true. High-profile layoffs across corporate America have saddled tech and office workers with pink slips. But while button-up gigs have cut back on hiring, one sector has been eager to hire — desperate to make good on orders they’ve already been paid for.

Battle of brains: Thanks to a record $2.4T spent globally on defense in 2023, many defense contractors are sitting on equally record-breaking orders — and, in turn, pressing demand for staff to help fulfill orders for vehicles, aircraft, and weaponry. With conflicts in the Middle East and Ukraine stoking geopolitical angst, defense firms are hiring at rates not seen since the end of the Cold War — with some aiming to increase their workforce by 5-10%.

• Major players like Lockheed Martin ($LMT), Northrop Grumman ($NOC), and General Dynamics ($GD) have 6K open positions — while ten smaller industry players are looking to add 37K jobs.

• According to ASD Secretary-General Jan Pie, the defense sector is experiencing “the highest increase in order volume in a rather short period of time.”

Ready for War?

Can record demand and hiring translate to record stock prices? It depends. Despite recent all-time highs for indexes tracking the domestic defense business, such as the iShares US Aerospace & Defense ETF ($ITA), their year-to-date (YTD) returns of 7% are only half the S&P 500’s — and many US defense stocks are underperforming.

• Lockheed Martin is barely in the green, while Boeing ($BA) and Northrop Grumman are down this year.

• Conversely, European defense contractors have generated some of the best returns in the world, buoyed by billions in new investments by European nations.

Defense posture: For exposure to the global defense boom, Absolute Strategy Research’s Ian Harnett suggests the Global X Defense Tech ETF ($SHLD), an actively managed fund that includes 35 domestic and international stocks. This fund, which excluded market losers like Boeing, has been beating the S&P 500 and Nasdaq-100 with a 20% return YTD. However, before buying in, consider whether record defense spending will continue or fade like a brief missile explosion.

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LARGECAP RECAP

💉 How HIV Drugs Have Become A Billion-Dollar Franchise for Pharma Giants

After 43 years, the world’s worst modern health crisis could finally be coming to an end. Since 1981, over 40M people have died of HIV/AIDS worldwide. But thankfully, modern diagnoses are no longer a death sentence — and diagnosis rates are falling thanks to the increasing popularity of preventative drugs. With preventative treatment on the rise, some pharma leaders have made billion-dollar franchises out of ending the pandemic.

• Gilead’s ($GILD) once-daily Truvada and Descovy PrEP pills have generated peak annual sales of $3B and $2B, respectively — and now, Gilead hopes to bring a lucrative injectable PrEP to market.

• GSK ($GSK) and ViiV Healthcare have jointly launched injectable versions of PrEP — Cabenuva and Apretude — generating $338M in the latest quarter, a 77% increase year-over-year.

Adoption curve: The CDC says that 1.2M high-risk people in the US could benefit from preventative meds — but only 36% of those patients are currently enrolled in treatment. That’s up from 23% in 2019, but there’s still a lot of room for improvement. To close the gap, the US has been giving away HIV drugs for free to uninsured Americans through its “Ready, Set, PrEP” campaign — and new laws will mandate insurers to cover injectable HIV prevention drugs by 2025. However, reaching 100% enrollment will require making drugs cheaper — and facing conservative lawsuits against widening care. Both could impact profits and the efforts against the disease.

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Markets & Economy

Shein’s US IPO is dead: Seven months after filing for a US initial public offering (IPO), experts say the Chinese fashion titan shifted its public listing to London due to regulatory setbacks, abandoning its plans for a US IPO. [Read]

US Supreme Court term is coming to a close: The nation’s highest court will decide 23 cases by the month’s end — with meaningful consequences afoot for presidential power, regulatory agencies, and Donald Trump’s prosecution. [Read]

Amex ($AXP) expands dinner reservation product: The payment processor acquired Tock, a service for booking dining and reservations, in a $400M deal. Amex also offers a similar service through Resy, which has been expanding ahead of planned changes to its card products this year. [Read]

Business & Wealth

Independence Day travel to set records: AAA reports nearly 71M people will travel during the July 4th holiday week, up 5.7M from 2019 levels. Most will travel by car, with the rest using other means. [Read]

SpaceX launches portable Starlink mini: For $599, you can get satellite WiFi anywhere — even in the middle of nowhere. Elon Musk’s satellite company has launched a portable satellite dish that can fit inside a backpack. [Read]

Student loan forgiveness deadline approaches: Students who apply for loan consolidation by Jun. 30 could benefit from a temporary policy allowing accelerated debt forgiveness. [Read]

Amazon ($AMZN) embraces plastic-free packaging: The tech giant has eliminated single-use plastics and plastic air bags in its packaging, which stands to make this Prime Day the most sustainable one yet. [Read]

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DIGIT OF THE DAY

Complex Supply Chains And Increased Regulations Drive 8% Rise in Product Recalls in Q1 2024

You buy a coffee cup expecting it to, well, hold hot liquids, right? That wasn’t the case with Declan’s coffee mugs, where last week, 580K units were recalled for possibly shattering when filled with… hot liquids. Product recalls have steadily grown since the Food and Drug Administration (FDA) was given more authority to issue recalls in 2011. In the first quarter of 2024, product recalls across five industries (including auto, food, and pharma) in the US rose 8% compared to the same period in 2023 — the highest level over five years.

• Pharmaceutical recalls jumped 42.4% to a 19-year high between 2022 and 2023.

• Food recalls have also surged by 118% from 2018-2022, according to a 2023 report from MasterControl.

Safety isn’t always first: Food and beverage recalls accounted for 64% of all recalls by the FDA, with drugs taking the second spot at 22%. An analysis by Bloomberg points to the increasingly complex and outsourced drug manufacturing process as a key factor behind the rise in drug recalls. CVS was highlighted, with its generic over-the-counter drugs nearly doubling the number of Walgreens recalls and tripling Walmart’s. Quality concerns among international factories, which have become a cheaper alternative for pharma companies, were also singled out.