The month of March saw a reasonable rebound from February as the S&P 500 gained 3.6 %, while the and the Dow gained 2.2 %.
However, the 1st quarter was not kind to investors. For the quarter the NASDAQ lost 9%, the Dow lost 4.6% and the S&P 500 lost 4.9%.
Rather than restate market news this month, I decided to point out two areas that may see a significant increase in both attention and investment because of the war. As the war in Ukraine unfolds, cyberwarfare is likely to play a role. I suspect we will be confronted with some incredibly ugly realities that will support increased cybersecurity spending in the near term, but it will more likely be a meaningful inflection point for the industry.
The Overton window — the range of policies politically acceptable to the mainstream population at a given time — around cyberwarfare as a tool in international relations could open wide and expose incredible weaknesses in U.S. and EU security.
According to an article from Capital Group, the parent company to the American Funds Group, most U.S. critical infrastructure assets fail even basic cybersecurity protocols and penetration testing. While most of the large financial institutions seem to be reasonably good, energy and utility companies in both the U.S. and Europe have substantially underinvested in cybersecurity — and many remain vulnerable.
Cybersecurity investments have strong potential for two reasons:
1) the spending outlook and 2) the fundamental change in industry structure that allows for platform formation and hence more sustainable growth. In the short term, accelerating cybersecurity budgets among corporations, as well as federal and state governments, is a near certainty. And as the situation in Ukraine escalates, there is a chance for more pronounced long-term changes.
Another area that is likely to see a significant increase in spending is the U.S. defense spending. As a percentage of GDP, the United States’ current budget is 3.2%, near an all-time low versus the 4% to 5% we have seen during periods of heightened threat levels or war, leaving a lot of headroom for budget growth in the U.S.
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