Major defense contractors rallied sharply after former President Donald Trump announced plans to increase the U.S. military budget by 50% if re-elected, reversing earlier market skepticism. The move triggered a rebound in defense equities after a period of sharp swings.
- Trump pledged a 50% increase in the U.S. military budget if re-elected.
- S&P 500 Defense Contractors Index surged 7.3% in one day.
- Lockheed Martin (LMT) gained 8.1%, Raytheon (RTX) rose 9.4%, Northrop Grumman (NOC) advanced 7.8%.
- A 50% budget increase could add $400 billion over four years.
- Defense-focused ETF DFEN saw $2.1 billion in net inflows in five days.
- Market volatility in recent weeks has heightened sensitivity to defense policy signals.
Defense stocks posted strong gains on Thursday following former President Donald Trump’s public commitment to increase the U.S. military budget by 50% in the event of a second term. The announcement, made during a campaign rally in New Hampshire, reversed earlier market sentiment that had been weighed down by uncertainty around defense spending priorities. Investors responded quickly, with the S&P 500 Defense Contractors Index jumping 7.3% in midday trading, marking its largest single-day rally since mid-2022. Key defense firms saw notable gains: Lockheed Martin (LMT) rose 8.1%, Raytheon Technologies (RTX) climbed 9.4%, and Northrop Grumman (NOC) advanced 7.8%. The rally was fueled by expectations of sustained and significant capital inflows into advanced weapons systems, space-based defense platforms, and next-generation fighter programs. Analysts estimate that a 50% increase in the current $800 billion defense budget would add approximately $400 billion in new spending over four years, with a large portion allocated to R&D and procurement contracts. The sector had experienced a volatile period in December and January, with shares of major contractors fluctuating by more than 15% within two weeks amid shifting political commentary and concerns over fiscal restraint. The recent swing in investor sentiment underscores the market’s sensitivity to defense policy signals. The rebound has also drawn attention from institutional investors, with ETFs focused on defense and aerospace, such as the Defense Sector ETF (DFEN), seeing $2.1 billion in net inflows over the past five trading days. Market participants now anticipate heightened competition among defense vendors for new contracts, particularly in cyber defense, hypersonic weapons, and drone technology. The rally reflects growing confidence in a pro-defense fiscal environment, though analysts caution that actual spending increases remain contingent on legislative approval and broader economic conditions.