La Defensa cae en Wall Street por el temor a un menor gasto

The Trump administration's plan to raise $250 billion in military spending faces uncertainty as bipartisan support for a higher budget weakens. American defense companies' stocks are wavering amid growing expectations of a resounding Democratic victory in the mid-term elections. Investors are betting that Trump's plans to increase military spending by $500 billion will be dismissed.

The iShares US Aerospace and Defense ETF, the sector's benchmark, has dropped 16% since early July, while the S&P 500 has risen 3.5% during the same period. Expectations of Democrats regaining control of both chambers of Congress in November have risen by 20%, according to the prediction platform Kalshi. Democrats are expected to gain the majority in the House of Representatives in the mid-term elections but face a tough battle to regain control of the Senate, where 35 of the 100 seats are at stake.

In January, Trump's proposal to increase annual defense spending from $1 trillion to $1.5 trillion to build a dream army generated enthusiasm among investors and executives in the sector. However, relations between Defense Secretary Pete Hegseth and Congress have deteriorated due to the war with Iran, while Democrats have committed to reversing drastic cuts to national programs.

Concerns about inflation and rising Treasury bond yields have also raised doubts about bipartisanship support for more military spending. American defense stocks have underperformed this year, despite a global increase in defense spending and unresolved conflicts in Ukraine and the Middle East, which have fueled demand for U.S. missile systems.

With major defense contractors already dealing with years of production delays, the urgency of the U.S. and its allies to replenish and expand ammunition reserves since the war began has not translated into greater investor enthusiasm. Lockheed Martin, the prime contractor for the proposed Patriot missile defense system, has fallen more than 20% since its March high, while other leading defense sector companies, such as Northrop Grumman and L3Harris, have fallen 35% and 36%, respectively, over the same period.

Byron Callan of Capital Alpha Partners notes that several executives were optimistic in January about Republicans fulfilling Trump's proposal to allocate an additional $500 billion to defense. However, Democrats are unhappy with how part of the defense funding has been approved in Congress. Hegseth has further infuriated lawmakers with his refusal to provide a detailed report on the costs of the Iran conflict.

But Randy Gwirtzman, manager of Baron Capital, says there is a misconception that "if Democrats win the mid-term elections, Defense will be destroyed. I really don't think that's the case." Several leading American defense companies have recovered in recent days as investors anticipate the release of third-quarter earnings next week.

Aerospace and defense stocks have also benefited from the reallocation of funds away from tech infrastructure spending, amid fears of excessive spending on AI infrastructure. Cantor Fitzgerald analysts believe consolidated defense values will be benefited as prolonged conflicts weaken U.S. deterrence capability to the point of increasing the probability of a larger global conflict.