Defense Stocks Surge on Trump's $1.5T Military Budget Proposal
A proposed 50% increase in defense spending for 2027 has lifted shares of major contractors, reversing earlier losses tied to industry criticism.
Shares of major U.S. defense contractors soared on Tuesday following former President Donald Trump's proposal for a $1.5 trillion military budget for fiscal year 2027, a substantial increase that overshadowed his recent criticisms of the industry.
The proposed figure, a dramatic hike from the approximately $900 billion budget for the current year, signaled a potential windfall for companies reliant on government contracts. The market reaction was immediate and pronounced. Northrop Grumman saw its stock jump 8.3%, while Lockheed Martin gained 6.4%. Other major players, including L3Harris Technologies and RTX, rose 7% and 3.7%, respectively, as investors priced in the prospect of a massive expansion in military procurement and modernization programs.
The rally marked a sharp reversal from just a day prior. Defense stocks had been under pressure after Trump lambasted industry executives over high salaries and share buybacks, even issuing an executive order threatening to cap pay and block capital returns until weapons production was accelerated. According to Defense One, this stance had created significant investor uncertainty, weighing on share prices across the sector.
However, the sheer scale of the proposed budget—representing a more than 50% jump from current spending levels—appeared to quickly allay those concerns. The move was interpreted as a clear signal of a potential second Trump administration's commitment to a major military buildup. As reported by Investopedia, the surge in spending would align with a broader strategic posture of military assertiveness, directly benefiting firms involved in advanced weaponry, aerospace technology, and ammunition.
The proposal, if enacted, would represent one of the largest military budgets in U.S. history in real terms, aimed at modernizing an aging arsenal and projecting strength amid rising geopolitical tensions. While the plan has invigorated the defense sector, its path to becoming reality is long. It remains a campaign proposal, contingent on the outcome of the upcoming presidential election and requiring subsequent approval from Congress, which holds the ultimate power of the purse.
For now, investors are betting on the prospect of renewed and expanded government spending. The gains were not limited to the largest contractors; smaller firms like Kratos Defense and AeroVironment also experienced double-digit percentage increases,as noted by Virginia Business. The sector-wide rally underscores how closely the fortunes of the defense industry are tied to the political landscape and national security priorities articulated in Washington.