US defence sector hit by sequester fears Even as markets mostly shrugged off fears over sequestration - $85bn in federal spending cuts in 2013 - defence company shares were hit as the Pentagon was expected to face the heaviest of the budget cuts. The S&P 500 aerospace and defence sub-sector was down 0.9 per cent by midday. Companies such as Lockheed Martin and Northrop Grumman had already seen their shares suffer since the beginning of the year and warned that they would face contract terminations, factory closures and thousands of job losses once cuts became effective. Shares in Lockheed Martin fell 1.7 per cent to $86.69 and have lost 6 per cent year to date. Boeing shares fell 1.3 per cent to $76.27 and Northrop Grumman lost 1.9 per cent to $64.28. Analysts at Citi Research, however, told clients that the defence sector had been oversold. Assuming this base case of flat budgets pans out, the market is too negative on defence, pricing in a perpetual reduction in free cash flow anywhere from 1-7 per cent. Even if we adjust for sequester, we still consider the market to be overly negative," the note said. The rest of the US equity markets were taking a pause and were modestly lower on the first day of trading after fiscal sequestration came into effect on Friday night. Investors last week brushed off the potential impact , with indices trading near cyclical peaks. Analysts at Goldman Sachs wrote that equity markets have "depoliticised," at a time when political rancour has hit a crescendo, and returned to fundamentals. The benchmark S&P 500 was trading 0.3 per cent lower yesterday at 1,512.90 with investors favouring defensive sectors stocks such as utilities and telecoms, while shunning energy, industrials and materials. The Dow Jones Industrial Average fell 0.4 per cent to 14,037.51. Shares in miners and metal producers were hit after a report by Deutsche Bank said iron ore prices may slump 24 per cent by the end of this year as supply expands. In a research note, they wrote that low steel demand from China and an abundance of scrap metal were key threats to prices. Shares in Cliffs Natural Resources , an iron ore producer, fell 6.1 per cent to $23.70, making it the worst performing stock on the S&P 500 index. Shares in Allegheny Technologies dropped 3 per cent to $29.39, while United States Steel lost 2.1 per cent to $19.89. Hess shares climbed after the oil and gas company said it would quit its retail, energy marketing and energy trading businesses and increase dividends. The company was responding to pressure from its third-largest shareholder, Elliott Management, which has long been lobbying for spinning off some of its assets. The shares rose 3.6 per cent to $68.93. The technology-heavy Nasdaq Composite shed 0.4 per cent to 3,158.40. Shares in Apple , the largest component of the S&P 500 index and Nasdaq, fell 1.9 per cent to $422.37. The iPhone maker has lost nearly 40 per cent of its market value since peaking last September. Netflix dropped 5.3 per cent to $179.23. The shares had gained more than 90 per cent since the start of the year. Yahoo shares rallied 2.6 per cent to $22.50 after analysts at Barclays upgraded the stock to "overweight," saying minority stakes in businesses such as Alibaba Group and Yahoo Japan have not been fully priced in. "The value of the company's underlying Asian assets, namely Alibaba Group and Yahoo Japan, have appreciated and the full value of these assets is not being ascribed to Yahoo shares," the note said