By William Collins, consultant in stock markets – Eurasia Business News, January 8, 2025. Article no 1985
Defense and aerospace shares jumped globally after President Donald Trump called for a huge increase in U.S. military spending, proposing a 2027 defense budget of about $1.5 trillion, well above current plans. The move boosted expectations of larger future contracts for major contractors, outweighing concerns about his criticism of industry practices.
Trump had earlier pressured the industry by ordering limits to shareholder payouts.
What happened in markets
U.S. defense stocks rallied sharply on the day of Trump’s comments, with big names such as Lockheed Martin, Northrop Grumman, General Dynamics and RTX all moving higher in pre‑market and regular trading.
A global basket of European and Asian defense names also rose, as investors bet that higher U.S. spending and elevated geopolitical tensions would support the broader sector.
Trump’s budget signal
Trump publicly argued that the 2027 U.S. defense budget should rise to around $1.5 trillion, compared with roughly $900 billion–$901 billion currently in the pipeline for 2026.
He framed the increase as necessary to build a “Dream Military” and to respond to what he described as very troubled and dangerous global conditions.
Why stocks rallied despite criticism
Earlier in the week, Trump had criticized major contractors over slow production, maintenance issues, buybacks, dividends and high executive pay, which initially pressured share prices.
The subsequent, much larger budget proposal shifted focus back to revenue and earnings potential from future contracts, so traders treated the policy mix (tougher terms but much more money) as net positive for defense earnings power.
Notable stock moves
Lockheed Martin, Northrop Grumman, General Dynamics and RTX all saw single‑day rebounds of roughly 3–7% after the budget signal, recovering part or all of losses from the prior session.
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In Europe, firms like BAE Systems and Germany’s Renk hit or approached multi‑year highs, while defense indices outperformed their local benchmarks for the week.
Key investor takeaways
The market is currently pricing in:
Higher medium‑term revenue visibility for prime contractors if Congress enacts any significant portion of the proposed increase.
Ongoing policy risk, since Trump has also floated limits on buybacks, dividends and executive pay for firms heavily reliant on Pentagon contracts.
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For investors, this episode underlines that U.S. defense names are highly sensitive to presidential budget rhetoric and to geopolitical events, not just to traditional fundamentals.
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© Copyright 2025 – Eurasia Business News. Article no. 1985
Eurasia Business News 