(José Niño, Headline USA) U.S. aerospace and defense shares have lagged the broader market as investors reassess whether President Donald Trump’s proposed $500 billion military spending expansion can survive the November midterm elections. The Financial Times reported that Wall Street is increasingly pricing in a Democratic congressional breakthrough and a tougher path for the administration’s defense plans.
The iShares U.S. Aerospace and Defence ETF dropped 16 percent from early July through mid October, even as the S&P 500 advanced 3.5 percent, the Financial Times said. During that period, Kalshi market odds of Democrats winning both congressional chambers rose by 20 percent.
Robert Stallard of Vertical Research Partners said the market has tied contractor valuations increasingly closely to Trump’s political standing. “[US President Donald] Trump’s political fortunes and the chance of the Republicans losing the Senate have almost been in lockstep with the performance of defence stocks,” he told the Financial Times. “Usually, defence is a bipartisan issue, but this administration has made defence partisan.”
Trump’s proposal would lift annual defense spending from $1 trillion to $1.5 trillion. The Financial Times reported that defense executives greeted the plan enthusiastically in January, but conflict between Defense Secretary Pete Hegseth and lawmakers over the Iran war has weakened confidence that Congress will approve the full increase.
The industry has also struggled to convert exceptional global demand into stronger share prices. The Financial Times noted that America and its allies are trying to rebuild weapons inventories amid continuing wars in Ukraine and the Middle East, yet large manufacturers retain lengthy production backlogs.
Lockheed Martin shares have fallen more than 20 percent from their early March high. Northrop Grumman and L3Harris have declined 35 percent and 36 percent over the same stretch, respectively, according to the Financial Times.
Capital Alpha Partners managing partner Byron Callan said Democrats may accept a higher overall defense budget while demanding more money for domestic programs and closer review of expensive weapons systems. “I don’t hear any Democrat calling for steep cuts in defence spending, but defence can’t be viewed in isolation,” he said. “Democrats are going to be wanting to increase non-defence spending, and so defence is likely to be subsumed into those discussions.”
Stallard said projects most closely identified with Trump could face the greatest scrutiny. “Anything that has Trump’s name on it or the word ‘golden’ could be at risk,” he said, referring to proposed Trump class battleships and the Golden Dome space defense initiative.
José Niño is the deputy editor of Headline USA. Follow him at x.com/JoseAlNino
