Defense Stocks Surge After Trump's $1.5T Budget Bombshell
Lockheed Martin jumps 4%, Northrop Grumman rallies as Trump proposes boosting military spending to $1.5 trillion in 2027 from $901 billion.
Defense contractors had a wild 48 hours—and they came out ahead.
President Trump's social media post calling for a $1.5 trillion defense budget in 2027 sent Lockheed Martin, Northrop Grumman, and RTX sharply higher Thursday after an initial selloff earlier in the week. The proposed spending level represents a 66% increase from the $901 billion appropriated for fiscal 2026.
The reversal was dramatic. After Trump criticized defense contractors for slow deliveries and excessive shareholder payouts on Monday, shares tumbled. Northrop fell 5.5%, Lockheed dropped 4.8%, and RTX slipped 2.5%. But the $1.5 trillion headline on Wednesday night changed everything.
Thursday's Rally
The numbers tell the story:
| Stock | Thursday Gain | Week-to-Date |
|---|---|---|
| Lockheed Martin (LMT) | +4.34% | +2.1% |
| Northrop Grumman (NOC) | +2.39% | +3.8% |
| RTX Corp (RTX) | +0.91% | +1.2% |
| General Dynamics (GD) | +1.87% | +1.5% |
| L3Harris (LHX) | +1.43% | +11% YTD |
Northrop led the premarket surge with an 8.3% gain after receiving a new $94 million Navy contract. The company is seen as the primary contractor for several components of Trump's proposed "Golden Dome" missile defense system and the B-21 Raider stealth bomber program.
Lockheed's recovery reflects expectations that the expanded budget will include larger orders for the F-35 Lightning II fighter jet. The company builds approximately 150 F-35s annually, and Pentagon officials have signaled interest in accelerating production.
The $1.5 Trillion Question
Trump's Truth Social post didn't mince words: "After long and difficult negotiations with Senators, Congressmen, Secretaries, and other Political Representatives, I have determined that, for the Good of our Country, especially in these very troubled and dangerous times, our Military Budget for the year 2027 should not be $1 Trillion Dollars, but rather $1.5 Trillion Dollars."
The justification? Tariff revenue. Trump claimed the administration's import duties have generated enough cash to fund the increase without congressional appropriation battles. Treasury data shows tariffs brought in $195 billion in fiscal 2025 and another $62 billion so far in 2026.
But there's a catch. The Committee for a Responsible Federal Budget estimates that sustaining $1.5 trillion in annual defense spending would add $5.8 trillion to the national debt over the next decade. Congress still needs to approve the budget, and fiscal hawks in both parties have expressed concern.
What the Increase Would Fund
The proposed budget represents a transformation of U.S. military spending priorities:
Missile Defense: The "Golden Dome" concept—a comprehensive shield against ballistic missiles, cruise missiles, and hypersonic weapons—would require tens of billions in new investment. Northrop and Lockheed would be primary beneficiaries.
Naval Expansion: The Navy has pushed for a 355-ship fleet, up from approximately 290 today. That means more aircraft carriers, destroyers, and submarines. Huntington Ingalls and General Dynamics' Bath Iron Works would see expanded orders.
Air Dominance: More F-35s, accelerated B-21 production, and funding for next-generation fighter development. Lockheed, Northrop, and Boeing's defense division stand to gain.
Space Systems: SpaceX competitor contracts aside, traditional defense primes would see expanded funding for military satellite constellations and space-based sensors.
Traders Are Repositioning
Options activity in defense names picked up notably Thursday. Call volume in Lockheed Martin ran 40% above average, with particular interest in February expirations at strikes 5-10% above current prices.
The rotation into defense came partly at tech's expense. As investors exited NVIDIA and other AI names Thursday, some of that capital flowed into defense contractors—a classic sector rotation during periods of geopolitical uncertainty.
For context, L3Harris has already gained 11% year-to-date, making it one of the top performers in the S&P 500 during the first week of trading. The broader market rally that pushed the Dow past 49,000 earlier this week has been notably defense-heavy.
The Bear Case
Not everyone is buying the rally. Several analysts point out that:
Budget Approval Is Uncertain: A $1.5 trillion defense budget would require bipartisan congressional support. Democrats have historically favored domestic spending over military expansion, and some Republicans worry about deficit implications.
Execution Risk: Trump's earlier criticism of defense contractors—that they're slow to deliver and too focused on shareholder returns—reflects real frustrations within the Pentagon. Contractors would need to demonstrate faster production timelines to justify expanded orders.
Valuation Already Reflects Optimism: Defense stocks rallied significantly in 2025 on expectations of increased spending. Lockheed trades at 21 times forward earnings, above its five-year average of 17x. The easy gains may already be priced.
What Comes Next
The budget proposal is just that—a proposal. The real legislative process begins when Trump submits a formal budget request, typically in February. Congressional hearings, mark-ups, and negotiations will follow.
For traders, the key dates to watch are the House Armed Services Committee hearings in late February and the Senate's initial budget resolution, expected in March. Defense stocks tend to be volatile around these milestones as the actual numbers come into focus.
The sector has momentum. Whether it can sustain gains depends on whether $1.5 trillion remains the target or gets negotiated down. Either way, defense is clearly a 2026 theme.