US defense stocks fall on election bets and $1.5 trillion funding proposal
Key Facts
US defense stocks fell as investors bet on a Democratic sweep in the upcoming congressional elections, according to the headline of a Financial Times report, while President Donald Trump's administration is seeking $1.5 trillion in national defense funding for fiscal 2027. Bloomberg reported that traders are preparing for protracted funding negotiations if control of Congress changes after the midterm elections. Concerns cited by the agency include delays in funding reaching its recipients as well as extended negotiations. This scenario hinges on Democrats taking control of one or both chambers of Congress and remains conditional on the election results. That puts the budget approval process at the center of concerns facing the sector, alongside the scale of defense spending proposed by the administration.
The White House Office of Management and Budget describes the defense funding request as a 44% increase under the fiscal 2027 budget proposal. The office said in the budget document that the administration seeks to bolster funding "by requesting $1.5 trillion for 2027, an increase of 44%." On the non-defense side of the budget, the White House proposes a 10% spending cut. The document uses 2026 non-defense spending levels as the baseline for that reduction. The administration's proposal thus combines an expansion in requested national defense funding with a reduction in non-defense spending, while neither chamber of Congress had passed an appropriations bill when Bernstein's analysis, published on Investing.com, was prepared.
In an estimate covering discretionary defense funding, the Congressional Budget Office put the proposed increase for fiscal 2027 at $251 billion. That amounts to a 28% increase over discretionary defense funding provided for fiscal 2026 as of the office's analysis. The office said the proposed amount "would exceed discretionary defense funding provided so far this year by $251 billion, or 28%." This estimate covers discretionary defense funding, while the broader White House request is labeled national defense funding. The budget office's comparison also uses funding already provided when the analysis was prepared, against the amounts requested for the next fiscal year.
On the legislative process, ABC News explained in its coverage of the budget request that budget reconciliation allows legislation to pass with a simple majority in the Senate. It added that this process has the advantage of being exempt from the filibuster. Against the pessimism surrounding appropriations negotiations, Bernstein's analysis presented an outlook for continued expansion in defense investment. The firm's analyst Douglas Harned expects the 2027 defense investment budget to rise by more than 10%, according to the analysis published on Investing.com. Harned's estimate remains a forecast for the next budget, at a time when passage of an appropriations bill was still pending in both the House and Senate when the analysis was prepared.
As a backdrop to the sector's performance, defense stocks had entered bear-market territory while recording their longest losing streak since 2011, according to an earlier report published by EL7. On corporate results, Lockheed Martin reported higher sales in its Missiles and Fire Control segment in the second quarter of 2026. Sales in the segment increased by $668 million compared with the second quarter of 2025. The increase represents growth of 19%, according to the company's financial results statement. These figures cover the performance of the Missiles and Fire Control segment during that quarter, while investors prepare for third-quarter results from defense companies as the election approaches.
The upcoming schedule begins with Northrop Grumman's release of its third-quarter 2026 results on October 20, 2026, according to the company's investor relations statement. The company scheduled the release before the market opens that day. It will be followed by Lockheed Martin, which said it would publish its third-quarter 2026 results on October 22, also before the market opens. Both earnings releases come before the congressional general election, which the Federal Election Commission has scheduled for November 3, 2026. The upcoming election is for Congress, and the risks traders are preparing for, according to Bloomberg, center on funding negotiations if control of one or both chambers shifts to Democrats.