U.S. Defense Stocks Plunge on Prospects of Democratic Victory

U.S. defense stocks have come under heavy selling pressure. The sell-off reflects growing fears that the $500 billion (about 666 trillion won) increase in defense spending proposed by the Donald Trump administration will be blocked in Congress as Democrats swept the midterm elections.
The Financial Times (FT) reported on the 19th (local time) that the iShares U.S. Aerospace & Defense ETF (ITA), which focuses on the U.S. aerospace and defense sector, plunged 16% from July through the middle of this month. That contrasts with a 3.5% gain in the S&P 500, a benchmark for the New York stock market, over the same period.
With orders piling up, defense contractors are working so hard that they cannot meet demand even when operating at full capacity. Yet investors are dumping their stocks.
Lockheed Martin, the maker of Patriot missiles, has plunged more than 20% since its peak in early March, while Northrop Grumman and L3Harris have fallen 35% and 36%, respectively, over the same period. During that time, prediction site Kalshi showed that the probability of Democrats retaking both chambers of Congress in the midterm elections on Nov. 3 had risen 20%.
Robert Stollard, a defense analyst at Vertical Research Partners, said, “Defense stocks are faring poorly as the likelihood of a Republican loss in the Senate becomes more certain.” He added, “Defense stocks are generally nonpartisan, but this administration has given them a partisan hue.”
Democrats, who were expected from early on to have a strong chance of retaking the House in the midterm elections, are now almost certain to regain a majority in the Senate as oil prices surge following Trump’s launch of the war in Iran on Feb. 28. In this midterm election, 35 of the Senate’s 100 seats are up for grabs.
[email protected] Song Gyeong-jae Reporter