Defense Stocks Rally on Trump's $1.5 Trillion Budget Proposal
Shares of Lockheed Martin, Northrop Grumman, and RTX climbed after the former President called for a massive increase in military spending, though gains were tempered by new conditions.
Shares of the largest U.S. defense contractors surged in early trading after former President Donald Trump proposed a $1.5 trillion defense budget for fiscal year 2027, a figure that would represent a colossal increase in military spending.
Lockheed Martin (LMT), the maker of the F-35 fighter jet, saw its stock jump as much as 7.2%, while Northrop Grumman (NOC), producer of the B-21 Raider stealth bomber, climbed up to 7.5%. RTX Corp. (RTX), a key manufacturer of missile and radar systems, gained nearly 5% on the news. The proposal, made on January 7, energized investors betting on a significant ramp-up in government contracts and revenue for the sector.
The suggested $1.5 trillion budget stands in stark contrast to the approximately $901 billion defense bill authorized for fiscal year 2026. Such an expansion would signal a dramatic shift in national spending priorities, potentially driving a new supercycle for military procurement and research.
However, the initial rally was tempered by conditions attached to the proposal. According to reports, Trump also threatened to block contractors from paying dividends or executing share buybacks if they fail to accelerate the production of critical weapons systems. This caveat introduced a layer of uncertainty, causing the stocks to pare some of their earlier gains in the regular trading session.
The potential budget boost could reshape the outlook for major contractors. For Lockheed Martin, a larger budget could alleviate concerns over a planned reduction in F-35 procurement by the Air Force under the current budget outlook. The company, with a market capitalization of over $121 billion, remains heavily reliant on large-scale government programs.
Northrop Grumman, valued at over $87 billion, would likely see accelerated funding for its flagship strategic programs, including the new Sentinel intercontinental ballistic missile and the B-21 bomber, which are central to the Pentagon's modernization efforts. Similarly, RTX, which analysts at Bernstein had already noted as a 'winner' in the FY2026 budget proposal, would be positioned to secure expanded orders for its vast portfolio of tactical missiles and advanced defense electronics.
While the proposal has ignited investor interest, its path to implementation remains purely speculative and dependent on the outcome of future elections and congressional budget negotiations. For now, the move has reset Wall Street's expectations for the sector's potential, anchoring the debate around a new, much higher ceiling for defense-related spending.