U.S. defense stocks climbed sharply following revelations of a proposed $1.2 trillion military budget for fiscal year 2027 under a potential second Trump administration, with major contractors like Lockheed Martin, Raytheon Technologies, and Northrop Grumman leading gains. The plan signals a significant expansion of defense spending, focusing on next-generation aircraft, missile defense, and space-based systems.
- Proposed $1.2 trillion defense budget for FY2027 represents a 14% increase over current spending
- F-35 and B-21 programs expected to receive expanded funding, driving contractor performance
- Raytheon and Northrop Grumman to benefit from $48B in missile defense and $23B in space operations
- S&P 500 Defense Sector Index up 4.2% in one day, best performance in over 12 months
- 40% of budget growth attributed to R&D and modernization, including cyber and nuclear forces
- Stocks of LMT, RTX, NOC, LHX, and GD all posted gains between 4.1% and 6.8%
Defense stocks posted strong gains across major indexes after the release of a detailed outline for a $1.2 trillion defense budget proposal under a projected second term for Donald Trump. The plan, reportedly drafted by a transition team advisory group, calls for a 14% increase in base defense spending compared to current levels, with a primary focus on accelerating procurement of fifth-generation platforms, including the F-35 Lightning II and the B-21 Raider. The initiative also includes $48 billion for missile defense systems and $23 billion for space domain operations, underscoring a strategic pivot toward high-tech, long-range capabilities. Lockheed Martin (LMT) rose 6.8% on the news, with analysts citing the potential for expanded F-35 production lines and new international sales. Raytheon Technologies (RTX) gained 5.4%, supported by anticipated contracts for next-generation hypersonic interceptors and air defense systems. Northrop Grumman (NOC) saw a 5.1% uptick, reflecting optimism over its role in the B-21 program and growing cybersecurity infrastructure work. The S&P 500 Defense Sector Index closed 4.2% higher, marking its strongest daily performance in over a year. The proposed budget would also allocate $32 billion for modernization of nuclear forces and $19 billion to enhance cyber operations, positioning the Department of Defense as the largest single driver of federal spending growth. Industry experts note that such a scale of investment could lead to a 21% rise in defense R&D funding and a 17% increase in contractor backlog over the next three years. The market reaction suggests investors anticipate sustained demand for aerospace and defense goods, particularly in areas tied to geopolitical tensions in the Indo-Pacific and Eastern Europe. The rally extended beyond major contractors, with smaller players like L3Harris Technologies (LHX) and General Dynamics (GD) posting gains of 4.6% and 4.1%, respectively. The impact is likely to ripple through supply chains, with regional manufacturers and technology providers expected to benefit from increased subcontracting opportunities. However, some analysts caution that the political feasibility of such a budget remains uncertain, particularly given current fiscal constraints and bipartisan concerns over deficit growth.