Defense stocks took a hit Wednesday morning after Democrats pulled off a midterm sweep, winning control of both the House and Senate. Northrop Grumman (NOC), RTX (RTX), Lockheed Martin (LMT) and General Dynamics (GD) declined 3.69%, 3.30%, 2.66% and 2%, respectively, in pre-market trading.
The Democratic victory dealt a major setback to President Donald Trump and Republicans, reflecting voter dissatisfaction over rising costs and the Iran war. But for defense investors, the bigger question is what happens to the money.
Democrats Could Derail Trump's Defense Spending Push
Bloomberg Intelligence analysts warned that Democratic gains could stall defense spending growth from 2027 through 2028, potentially putting future industry growth at risk. A Democratic-controlled Congress could also give the party greater influence over funding negotiations in healthcare, clean energy and defense.
That complicates Trump's plan to raise annual defense spending from $1 trillion to $1.5 trillion, particularly amid the ongoing Russia-Ukraine and Iran wars. The increase requires congressional approval, and current stopgap funding keeps spending at last year's levels through Dec. 11.
Byron Callan, managing partner at Capital Alpha Partners, said both parties support replenishing depleted missile stockpiles, but lawmakers could increase scrutiny of expensive defense programs, including the F-35 and Sentinel.
Additionally, a Center for Strategic and International Studies (CSIS) analysis estimates that additional defense funding approved by Congress is more likely to reach $60 billion than the $350 billion requested by the White House, leaving a $290 billion shortfall. Republican divisions over whether to offset military spending with budget cuts or increase defense funding further remain a key obstacle to approving even the smaller amount.
Price Action: Year-to-date, Lockheed Martin stock surged 32.11%, while RTX and General Dynamics have climbed 11.13% and 11.24%, respectively, as per market data.
