Boeing shares advanced 2.6% on Friday, closing at $243.03, as a broad market rally propelled the Dow Jones Industrial Average past the 50,000 mark for the first time in history. The aerospace giant's gains came amid a strong session for industrial stocks within the index.
Pentagon Review Threatens Payouts
Investors are now focusing on an upcoming Pentagon review that could significantly impact defense contractors. The Department of Defense is preparing to release a list of companies deemed underperforming on weapons projects, which could lead to restrictions on stock buybacks and dividend payments for those firms.
The review stems from an executive order issued in January that prioritizes project delivery performance over shareholder returns. According to reports, contractors may be prohibited from issuing dividends or repurchasing shares until they deliver projects "on time and on budget." The order also includes potential limits on executive compensation.
Boeing's Complex Position
While Boeing has largely suspended buybacks and maintained minimal dividends as it addresses commercial aviation challenges, the company's defense unit remains under scrutiny. Persistent supply-chain bottlenecks and delivery schedule issues continue to affect both Boeing and rival Airbus, with industry executives describing these challenges as the "new norm" at the recent Singapore Airshow.
Boeing's latest earnings revealed continued struggles, with both commercial jet and defense-and-space units reporting losses in the most recent quarter, despite an overall profit achieved through asset sales.
Market Implications
Financial advisors have expressed concern about the potential impact of the Pentagon's capital allocation restrictions. David Sowerby of Ancora Advisors noted such policies represent "three-quarters of a step back" and could distort returns while altering compensation structures for executives at major defense firms.
The broader market faces additional tests this week with key economic data releases, including the U.S. Employment Situation report on Wednesday and January CPI figures on Friday, which could influence rate-sensitive industrial stocks.
