Defense stocks go on offensive

Christmas may be over, but the Pentagon’s wishlist is getting quite pricey.

Today, President Trump called for raising US’s already hefty military budget to $1.5 trillion in 2027, a nearly 50% jump from this year’s $901 billion budget.

“This will allow us to build the ‘Dream Military’ that we have long been entitled to, and, more importantly, that will keep us SAFE and SECURE, regardless of foe,” he wrote on Truth Social yesterday.

Defense contractors popped on the news: Northrop Grumman surged 2.39%, Lockheed Martin rose 4.39%, RTX gained 0.78%, while General Dynamics rose 1.68%. Drone companies ascended, too, with AeroVironment rising 8.31% and Kratos Defense jumping 13.78%.

European defense names like Renk and Leonard rose, too, as did Asian defense firms Mitsubishi Heavy and Bharat Electronics, as the trend of increased military spending continues to surge abroad.

Uno reverse: ​​Yesterday, many of the very same defense stocks tumbled after the president signed an executive order saying they can’t issue dividends or conduct share buybacks without his approval, blaming them for not producing enough.

“We see a record defense budget increase as the ‘carrot’ for Primes and capital return limit as the ‘stick,’” Morgan Stanley equity analyst Kristine Liwag wrote. “We view this budget development positively for Defense, outweighing possible headwinds from capital return restrictions.” Liwag maintained an ‘attractive’ view on the defense sector.

A reality check

If we learned anything from tariffs, more tariffs, and tariffs again, it’s that market moves based on a Truth Social post are fickle at best, and misleading at worst. Analysts noted that an increase in the military budget of the size that the president proposed would be unprecedented in recent political memory, and would require approval from the Senate to pass.

But even if the US doesn’t reach Trump’s $1.5 trillion goal, rising defense spending will still be a tailwind to the sector. Geopolitical instability has been the biggest story of the year so far—and one that isn’t going away anytime soon.—LB