Defense stocks slid on both sides of the Atlantic as the Democrats' landslide win in US midterm elections dented expectations of a further ramp-up in the country's military spending. Major contractors such as Lockheed Martin Corp. and Northrop Grumman Corp. fell more than 3% before the opening bell. A Goldman Sachs Group Inc. basket of Europe's defense firms fell as much as 4.1% on Wednesday, its steepest decline in more than four months. The UK's BAE Systems Plc, which gets nearly half its revenue from the US, declined as much as 5.9%.
Stocks in both regions had been riding high into 2026, supported by geopolitical tensions and plans by governments around the world to boost military spending. President Donald Trump called for a staggering $1.5 trillion in spending for the fiscal year ending in 2027. But the sector has been volatile since, as investors began to brace for Democrats to win big in the midterms, leading to tighter oversight and funding delays. Keith Lerner, chief investment officer at Truist Advisory Solutions, said there are now "some more open questions about the path forward for the defense budget."
Trump told the Financial Times on Tuesday that he had no immediate plans to launch strikes on Iran following the midterm elections. TD Cowen policy analyst Roman Schweizer wrote that a "Democratic sweep is clearly the toughest outcome for defense spending," and expects the next Congress to vote to compel Trump to end the war in Iran.
In Europe, defense stocks rallied last year after the US under Trump pulled back on its security commitment to the region. Mwb Research analyst Jens-Peter Rieck called the midterm results a "mild negative for sentiment on German defense stocks," with bigger moves possible when Rheinmetall AG and other German firms report third-quarter results on Thursday. Mediobanca's Alessandro Pozzi noted there is broader bipartisan support for key air and missile defense programs.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing