By Aatreyee Dasgupta and Mike Stone
Nov 4 (Reuters) – US defense shares fell on Wednesday as the Democrats’ resounding midterm election victory stoked concerns about increased pressure on the Pentagon’s spending plans.
The sector has benefited from President Donald Trump’s call for a $1.5 trillion US military budget for 2027, well above the currently approved $901 billion level, and the Iran war, which has fueled demand for missiles, air-defense systems and other weapons.
With Democrats set to control Congress, investors bet future defense funding may not be as robust as previously expected. Shares of Lockheed Martin, which oversees the biggest US weapons program, the F-35 fighter jet, fell 6.9%. Missile and radar maker RTX declined 3.1% and L3Harris Technologies sank 6.9%. General Dynamics and Northrop Grumman also dropped.
Analysts said a Democratic-led House could subject defense budgets and new programs to greater scrutiny even if support for military modernization remains broadly intact.
Jefferies analysts said in a note that they expect the 2027 defense budget to be closer to the House’s roughly $1.15 trillion proposal than the administration’s $1.5 trillion request.
“Trump “branded” programs are dead,” TD Cowan analyst Roman Schweizer said in an note. This included Golden Dome, the homeland missile defense shield and the Golden Fleet, a new Trump-class battleship and modernization program. Shares of Navy shipbuilder Huntington Ingalls Industries were down 4.9%.
Defense programs which were “least at risk” were nuclear modernization like the B-21 bombers made by Northrop, and the ICBM replacement program Sentinel intercontinental ballistic missile (ICBM), according to TD Cowan.
Companies, including RTX and Lockheed, reported upbeat quarterly results in October and record backlogs as governments moved to replenish stockpiles and bolster military readiness.
But the sector’s stocks have since given up much of those gains as investors grew skeptical of such spending increases becoming reality.
Including Wednesday’s declines, the S&P 500 Aerospace & Defense sub-index is down nearly 1% this year, while the Dow Jones US Aerospace & Defense sub-index is down 3.4%.
(Reporting by Aatreyee Dasgupta in Bengaluru and Mike Stone in Washington; Editing by Leroy Leo and Chizu Nomiyama )
