Dow rallies 1,500 points after decisive Democratic midterm victory, drop in oil prices: Live updates

On November 4th, US defense shares experienced a decline as Democrats’ strong midterm election results raised concerns about tighter Pentagon budgets. The sector has previously thrived due to President Trump's proposal for a $1.5 trillion military budget by 2027, exceeding the current $901 billion allocation, and the ongoing Iran conflict that has driven demand for defense-related products.

With Democrats poised to assume control of Congress, investors speculated that future defense funding might not be as generous as initially anticipated. Shares of prominent defense companies, including Lockheed Martin, which oversees the F-35 fighter jet, plummeted by 6.9%. Missile and radar manufacturer RTX experienced a 3.1% drop, while L3Harris Technologies saw a 6.9% decline.

General Dynamics and Northrop Grumman also faced a decline in their stock prices. Analysts forecast that the 2027 defense budget could be closer to the House's proposed $1.15 trillion figure, as opposed to President Trump's $1.5 trillion request. Specifically, defense programs like the Golden Dome, a homeland missile defense shield, and the Golden Fleet, a new Trump-class battleship, are expected to face increased scrutiny.

In addition, shares of shipbuilder Huntington Ingalls Industries dropped by 4.9%. The analysts from TD Cowan noted that nuclear modernization initiatives, such as the B-21 bombers manufactured by Northrop, and the Sentinel intercontinental ballistic missile (ICBM) replacement program, were least vulnerable to budget cuts. Despite strong quarterly results and record backlogs reported by several defense firms in October, investors grew increasingly cautious about the realization of increased defense spending.

Consequently, the S&P 500 Aerospace & Defense sub-index declined by nearly 1% this year, and the Dow Jones US Aerospace & Defense sub-index dropped by 3.4%.