US defense shares fell on Wednesday after the Democrats' midterm election victory raised concerns about the Pentagon's spending plans. Lockheed Martin and L3Harris each lost 6.9%. Analysts say a Democratic-led House could subject defense budgets to greater scrutiny.
US defense shares fell on Wednesday as the Democrats' resounding midterm election victory stoked concerns about increased pressure on the Pentagon's spending plans. Investors bet that future defense funding may not be as robust as previously expected, now that Democrats are set to control Congress.
Lockheed and L3Harris lead the drop
Lockheed Martin, which oversees the F-35 fighter jet, fell 6.9%, while L3Harris Technologies sank the same amount. RTX declined 3.1%, and General Dynamics and Northrop Grumman also dropped.
Navy shipbuilder Huntington Ingalls Industries was down 4.9%.
Budget expectations shift
The sector had 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. The Iran war, which has fueled demand for missiles, air-defense systems and other weapons, also supported the group.
Now, analysts say 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 expect the 2027 defense budget to land closer to the House's roughly $1.15 trillion proposal than the administration's $1.5 trillion request.
Trump-branded programs seen at risk
TD Cowan analyst Roman Schweizer said in a note that Trump-branded programs are dead, a group that includes the Golden Dome homeland missile defense shield and the Golden Fleet, a new Trump-class battleship and modernization program. TD Cowan listed nuclear modernization as least at risk, including Northrop's B-21 bombers and the Sentinel intercontinental ballistic missile replacement program.
The decline follows upbeat October quarterly results and record backlogs at companies including RTX and Lockheed. Including Wednesday's losses, 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%.
Source: Reuters via Investing.com
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