I cover all sectors, but my specialty is aerospace/defense. In my youth, as the editor of a publication devoted to rotorcraft, part of my job was to fly helicopters.

Over the decades, I got to know a lot of military officers and corporate CEOs in the aerospace industry. By interacting with these leaders, I learned one overarching truth: the Pentagon always gets its way. Despite economic ups and downs, military budgets are sacrosanct and consistently robust.

As the coronavirus pandemic unnerves investors and clobbers global economies, I want to focus today on the unstoppable rise of military spending around the world.

You should include defense stocks in your portfolio, especially in light of the many risks that currently bedevil the market. Simply put, the military is a cash cow. The latest defense data underscore this reality.

The Stockholm International Peace Research Institute (SIPRI) on Monday released new data showing that global military expenditures reached $1.9 trillion in 2019, the highest (inflation-adjusted) level recorded since 1988, when the Cold War still existed.

Last year’s global military spending total was 3.6% higher in real terms than 2018 and 7.2% higher than 2010. Together, the top 15 countries spent $1.5 trillion, 81% of spending.

The following infographic, published Tuesday by Statista, depicts global military budgets as a share of gross domestic product (GDP) in selected countries.

Whenever you hear an American politician complain that the U.S. military is underfunded, don’t believe it. According to Monday’s SIPRI report, the U.S. remained by far the world’s largest military spender in 2019 with $732 billion, nearly as much as the next 10 spenders combined. The Joint Chiefs of Staff won’t be rattling tin cups anytime soon.

China and India last year were, respectively, the second- and third-largest military spenders in the world. China’s military expenditures reached $261 billion in 2019, a 5.1% increase versus 2018, while India’s grew by 6.8% to $71.1 billion.

Russia was the fourth-largest military spender in the world in 2019, increasing its expenditures by 4.5% to $65.1 billion. At 3.9% of GDP, Russia’s military spending burden was among the highest in Europe last year.

In terms of defense budgets as a share of GDP, the picture is different. Despite Saudi Arabia’s military spending declining by 16% to $62 billion, that figure nonetheless represents 8% of Saudi GDP. The U.S. last year spent 3.4% of its GDP on the military while China’s spending reached 1.9% of GDP.

Russian military spending has expanded significantly over the past two decades. It rose by 30% in real terms between 2010 and 2019 and by 175% between 2000 and 2019.

The recent collapse in oil prices may make a dent in Saudi and Russian military spending over the short term, but the long-term trend is clear: global military spending is massive and growing.

The military money machine…

It’s my contention that the stock market is poised for further sell-offs this year. The economy is mired in a deep recession, with soaring unemployment.

Despite the yabbering of the financial media’s Pollyannas, the pandemic isn’t waning. The number of confirmed COVID-19 cases in the U.S. surpassed one million on Tuesday, more than doubling in less than three weeks.

The U.S. Commerce Department reported Wednesday that the U.S. economy shrank 4.8% in the first quarter, the worst contraction since the 2008 recession.

And yet, the three main U.S. stock market indices opened sharply higher Wednesday morning, as investors bet on further stimulus from the Federal Reserve. This afternoon, Fed Chair Jerome Powell is scheduled to hold a virtual press conference to discuss future monetary policy.

Wall Street’s renewed optimism ignores the widespread damage that the pandemic has wreaked on businesses throughout the country. During the coronavirus crisis, stock market rallies have largely resulted from artificial liquidity and the central bank’s “moral suasion,” not organic growth.

The Fed can prop up the stock market with stimulus and jawboning for only so long before reality intrudes. I expect stocks to soon retest their coronavirus crash lows.

But you can play defense, with defense. Not only do defense stocks confer opportunities for capital appreciation, they’re also effective hedges to help preserve wealth during downturns.

Read This Story: Video Update: Hedging Strategies for Wealth Preservation

Geopolitical turmoil triggered by the pandemic tends to hurt the stock market overall, but it’s manna for the coffers of the defense industry.

As with any trend, aerospace/defense expansion will have its winners and losers. Investors gravitate toward the leading names in the sector, but don’t ignore the smaller innovators that are setting the stage for multiyear growth. These smaller-cap specialty companies make the complex avionics, communications and electronics systems that the “big boys” can’t live without.

These pick-and-shovel plays produce the breakthrough technologies for guidance systems, cockpit displays, pilot-less drones, hypersonic cruise missiles, and a host of technologies that are transforming the 21^st century battlefield.

The warfighting edge of 5G…

Along those lines, a technological niche with huge implications for national security is the global implementation of 5G, the “fifth generation” of wireless technology. Super-fast 5G provides the backbone for the Internet of Things.

Military 5G mobile networking capabilities will exert a huge influence on defense communications. The country that dominates 5G will obtain an edge in military competitiveness. The Chinese government is subsidizing 5G development. Uncle Sam is leaving 5G to the private sector. The race is on.

The opportunities for investors in 5G wireless networks are enormous. That’s why our team of strategists recently put together a special report on 5G investment plays. Click here for our 5G presentation.

Coronavirus cash…

The coronavirus pandemic has resulted in even more money for U.S. defense. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act passed on March 27, the U.S. Department of Defense received $1 billion. Of that, $750 million is slated for purchasing medical supplies, while $250 million is earmarked for the Pentagon to use to shore up critical small suppliers that are struggling because of the pandemic.

As these small defense companies struggle, I anticipate a new wave of consolidation in the aerospace/defense sector in the coming months.

Recent stock market rebounds have been driven by large-cap stocks, with small- and mid-cap stocks lagging. The pandemic has hit smaller businesses harder, due to their relative lack of financial wherewithal compared to their larger brethren.

The U.S. defense industry is dominated by a handful of mega-cap companies that are the products of headline-making mergers. These cash rich behemoths are currently on the prowl, looking for small-cap acquisition targets that are undervalued and capable of delivering synergies and economies of scale.

In fact, one of our investment experts has developed a proprietary screen that uncovers how Wall Street rigs certain stocks involved in takeover activity…so you can jump in before these stocks shoot up in price. He’s ready to reveal his latest winning stock trade. Click here for details.

John Persinos is the editorial director of Investing Daily. He also serves as an analyst with the aerospace/defense consulting firm the Teal Group. You can reach him at: mailbag@investingdaily.com