Sector Rotation Alert: Defense Contractors Surge as Clean Energy Stocks Face Regulatory Crosshairs Under Trump's “Big Beautiful Bill”

The fate of President Trump's “One Big Beautiful Bill Act” hangs in the Senate, but its draft provisions have already sent shockwaves through markets. As defense contractors rally on border security spending and clean energy stocks falter under tax credit rollbacks, investors face a stark choice: pivot to sectors insulated from regulatory headwinds or risk exposure to policy-driven declines. Here's why defense outperformance is a near-term certainty—and how to capitalize.

Defense Contractors: A Policy-Fueled Tailwind

The bill's $46.5 billion allocation for border wall construction and $4.1 billion for Border Patrol hiring directly benefits firms like Leidos (LDOS), which provides immigration and border tech solutions, and Lockheed Martin (LMT), whose infrastructure contracts could expand. Meanwhile, the $12 billion supplemental border security fund opens opportunities for companies like Taser International (TASR), which supplies surveillance drones, and CyrusOne (CYRS), building data centers for border monitoring systems.

The bill also mandates $12.5 billion for FAA air traffic control modernization, boosting prospects for Boeing (BA) and Raytheon Technologies (RTX). Even within the broader sector, firms with exposure to the bill's “energy dominance” provisions—like oilfield services giant Halliburton (HAL)—could gain as methane regulations are rolled back.

Clean Energy Stocks: A Perfect Storm of Policy and Supply Chains

The bill's accelerated phaseout of wind, solar, and battery tax credits by 2028—combined with restrictions on Chinese supply chains—creates a double-edged sword. Sunrun (RUN), which saw its stock plummet 38% post-House passage, epitomizes the risk: its leasing model is now ineligible for credits, and its polysilicon supply chain relies on China. Similarly, First Solar (FSLR) and Enphase Energy (ENPH) face headwinds as project timelines clash with the bill's 60-day construction start deadline.

The Rhodium Group estimates the bill could raise household energy costs by 7%, further pressuring consumer-facing utilities like NextEra Energy (NEE). Even nuclear energy, which retains credits under the bill, is a niche play—Exelon (EXC) aside, few pure plays exist to offset broader sector losses.

The Sector Rotation Play: Go Long on Defense, Short Clean Energy

Immediate action: Rotate capital from clean energy ETFs (e.g., ICLN, PBW) into defense contractors. Consider LDOS, LMT, and BA as core holdings, with TASR and CYRS as tactical bets on border security execution.

Risk management: The Senate may soften the bill's clean energy provisions—especially given over 50% of Inflation Reduction Act projects are in Republican districts. Monitor amendments to the tax credit timeline and Chinese supply chain rules. A potential compromise could create a buying opportunity in solar stocks like RUN or FSLR if deadlines are extended.

Timeline: The House aims to have the bill signed by July 4, 2025. Investors should act now: defense stocks typically underperform ahead of infrastructure bill passage, but outperform once funding is secured.

Conclusion: Policy Certainty in an Uncertain World

While the Senate's final vote remains uncertain, the trajectory is clear: defense contractors are the only sector with guaranteed windfalls from the bill's passage, while clean energy faces existential risks. For investors, this is a textbook sector rotation opportunity—shift capital now to avoid being left behind in the policy-driven market reset.

Final caveat: Keep an eye on Senate amendments. A “phase 2” trade could emerge if clean energy provisions are diluted—but don't wait. The defense rally is already underway.