Sequestration, a process that automatically cuts the federal budget across most departments and agencies, took effect on Friday, March 1, 2013, as Congress and President Obama failed to reach an accord. The $1.2 trillion in cuts will be phased in with half the cuts focused on the Department of Defense (DoD) budget. The first phase of the cuts in 2013 will remove $85 billion, which pulls $46 billion from the DoD budget.
Sequestration has been in the news for months as the public has speculated that Congress would be unable to prevent these large scale cuts. Yet the equity markets were not negatively impacted, and we’ve seen a strong start to 2013. In fact, the NASDAQ U.S. Benchmark Index (NQUSB) has gained 6.71% since January 1, and the individual sector with the highest exposure to the government cuts, Defense, has also faired exceptionally well with a gain of 6.90%. Will the Defense sector be able to maintain its performance streak into 2013 as these cuts begin to be implemented?
Follow the PHLX Defense Sector in the days and months to come to track the impact of government spending cuts on the sector most impacted.