Democrats Win Control of Congress as European Defense Stocks Fall 0.7%

Key Facts

Democrats won control of the U.S. Congress in the 2026 midterm elections, a shift that gives them legislative and oversight influence that could put military spending back under discussion. The Associated Press said the party won control of Congress in Tuesday’s elections. In European trading on Wednesday, the STOXX Aerospace & Defense index fell about 0.7%, while the broader STOXX 600 rose 0.9% at 09:57 GMT, according to Reuters via Investing.com. The move in the defense sector came amid questions about the effect of the political shift on the course of military funding. But the election result alone does not establish the cause of the stock moves, and U.S. session data do not confirm a similar decline in U.S. defense stocks.

The decline extended to European companies with exposure to U.S. defense spending. BAE Systems shares fell about 4% in Wednesday trading, while Chemring declined 3% and Avon Technologies 2.4%, according to Reuters. The agency noted that the latter two companies have significant exposure to the U.S. market. By contrast, RTX shares closed at $203.82 on November 3, compared with $202.79 in the previous session, according to EL7 data. This shows that the U.S. company’s shares ended the previous session higher, while the documented declines were in European indexes and companies in the following day’s trading.

The sector’s sensitivity is tied to the legislative path for the budget and military contracts. Reuters said a budget vote was unlikely before 2027 and that Democratic control of the House of Representatives could bring military spending back under scrutiny. It added that Congress had not yet appropriated the funds needed for billions of dollars in contracts signed by major defense companies to replenish inventories. For companies, the issue therefore centers on the timing of funding approval, alongside the size of signed contracts. These issues put the budget and upcoming appropriations at the center of sector monitoring in the next phase.

Defense stocks rose in January after President Donald Trump called for a $1.5 trillion military budget, compared with an approved budget of $901 billion, before later giving up most of their gains, according to Reuters. On the demand side, the agency said the conflict with Iran showed no signs of ending, supporting continued weapons demand for RTX and Northrop Grumman and lifting the two companies’ backlogs to record levels. Lockheed Martin’s third-quarter results offer a picture of continued activity at one of the sector’s largest companies: sales rose 11% to $20.7 billion year over year, and net income increased 14% to $1.8 billion. The backlog also reached a record $292 billion, up 27% from the second quarter. These indicators highlight the combination of commercial demand and uncertainty over the timing of government funding.

The approved budget for fiscal 2026 stems from the National Defense Authorization Act, which authorized $890.6 billion in national defense spending, $8 billion more than the administration’s request, according to the Congressional Research Service. On broader policy, a Capital Economics analyst told the Associated Press that Democratic gains do little to change near-term policy expectations because the party lacks a Senate majority capable of breaking a filibuster and the president can veto legislation. These constraints provide context for assessing how quickly control of Congress could translate into spending changes. An Associated Press poll of voters also found that most blamed the administration for rising costs and wanted Congress to impose more limits on the president. This places political oversight and the cost of living among the factors surrounding Congress’s agenda.

In economic data, the U.S. Census Bureau said on October 27 that new orders for durable goods excluding defense rose 2.2% in September. Total orders increased 1.8% to $345.4 billion, after rising 0.1% in August, the bureau said. Orders excluding defense stood at $321,393 million in September, compared with $314,274 million in August, according to the Federal Reserve Bank of St. Louis series. This figure places growth in orders outside defense components alongside the monthly rise in total durable goods orders. The Census Bureau and Federal Reserve data set November 25 as the next release date for the series.

In the broader U.S. market, S&P 500 futures rose 0.2% and Dow Jones futures 0.4% in Wednesday trading, while oil prices fell, according to the Associated Press. This came in a session following the Democrats’ victory, as European indexes showed a decline in aerospace and defense against gains in the broader market. Military funding and appropriations for contracts remain central to political monitoring until the budget’s path becomes clear. According to Reuters, a vote is unlikely before 2027. The next durable goods data are scheduled for release on November 25.