'Dead Money'

Analysts at Wall Street firm Credit Suisse issued their 2012 outlook for the aerospace and defense sector. In it, they predict that commercial aerospace will outperform defense for the fourth consecutive year. Specifically on the defense sector, they write:

Defense Likely to be Dead Money:  While we do not believe that the failure of the Super Committee to reach an agreement will actually result in sequestration, we think Congress will use 2012 as a debating year. Consequently, we see the potential for much of the defense sector to be dead money in 2012, before underperforming from 2013 as cuts in the defense budget begin to come through. We view a falling defense budget as bad for defense prime margins as well as revenues, and consequently remain bearish on defense. We also note that 2012 is an election year. When looking at the previous 5 election years, it is found that the defense sector underperformed the market most in 1996, when a Democrat President was seeking re-election. This is similar to today, but today there is a less healthy economy, making it an even more bearish outlook for defense.