Defense stocks fall as Democratic victory raises budget concerns - Markets and investing

U.S. defense shares slid after Democrats’ midterm victory prompted investors to question whether Pentagon spending will match the administration’s proposed increase.

U.S. defense shares fell on Wednesday after Democrats’ strong midterm election showing fueled concerns that Congress could put greater pressure on Pentagon spending plans. Investors questioned whether defense funding would reach the levels anticipated by the industry.

The sector had benefited from President Donald Trump’s request for a $1.5 trillion military budget for 2027, above the currently approved $901 billion, as well as demand for missiles, air-defense systems and other weapons amid the Iran war. With Democrats set to control Congress, investors reassessed the prospects for future spending.

Lockheed Martin, which oversees the F-35 fighter jet program, fell 6.9%. RTX dropped 3.1%, while L3Harris Technologies declined 6.9%. General Dynamics and Northrop Grumman also lost ground. Huntington Ingalls Industries, a Navy shipbuilder, was down 4.9%.

Analysts said a Democratic-led House could scrutinize defense budgets and new programs more closely, even as support for military modernization remains broadly intact. Jefferies analysts said they expect the 2027 budget to be closer to the House’s roughly $1.15 trillion proposal than the administration’s $1.5 trillion request.

TD Cowen analyst Roman Schweizer said programs associated with Trump, including the Golden Dome homeland missile defense shield and the Golden Fleet battleship and modernization initiative, faced risks. The firm identified nuclear modernization, including Northrop’s B-21 bombers, and the Sentinel intercontinental ballistic missile replacement program as among the programs least at risk.

RTX and Lockheed reported strong quarterly results in October and record backlogs as governments replenished stockpiles and strengthened military readiness. However, defense stocks have since surrendered much of their gains as investors became less confident that the proposed spending increases would materialize.

Including Wednesday’s declines, the S&P 500 Aerospace & Defense sub-index was down nearly 1% for the year, while the Dow Jones U.S. Aerospace & Defense sub-index had fallen 3.4%.

Sources: Investing.com News.