Fearing ‘Fiscal Cliff,’ Investors Bearish About U.S. Contractors

July 15, 2012

Investors are punishing companies that depend on the U.S. government for sales as contractors face as much as $1 trillion in Pentagon cuts because Congress and the White House haven't agreed on a deficit-reduction plan.

A Bloomberg index of 70 federal contractors fell 15 percent for the 12 months ended July 3, compared with a 2.7 percent gain in the Standard & Poor's 500-stock index. Alliant Techsystems, the Defense Department's biggest ammunition producer, and AAR, an aviation parts supplier, were among the biggest losers.

The contractors' performance deteriorated relative to the S&P since March 1 amid rising investor concern that a "fiscal cliff" of possible spending cuts and tax increases tied to the deficit standoff will hurt government vendors' earnings the most. 

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