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Early midterm results on November 3 pointed to strong Democratic gains. Congress sets the Pentagon's budget, and analysts warned a Democratic majority could limit defense spending. That would hurt Lockheed Martin and RTX Corporation, whose largest customer is the US government, even though both stocks rose into the vote.
Source: MarketWatch ↗
When the people who write a budget change, companies that depend on that budget could lose sales. Their stocks may not yet reflect that risk.
As early counts favored Democrats on November 3, US stock futures and the dollar fell and Treasuries rose. Investors worried about tighter rules for big technology companies, such as Nvidia (NVDA), that had led the rally. Crypto firms like Coinbase (COIN) and drugmakers were also seen as exposed. Defense contractors face a slower effect. Congress decides how much the Pentagon can spend, and analysts warned a Democratic Congress could limit defense spending. Democratic leaders have not announced cuts. Lockheed Martin (LMT) and RTX Corporation (RTX) depend on that budget, because the US government is their largest customer. How much of their revenue a tighter budget would touch is not yet known.
Defense shares rose in the days before the vote while technology fell. RTX Corporation (RTX) gained 2.7% and Lockheed Martin (LMT) 1.3% over the five trading days to November 2, and Nvidia fell 6.5% over the same days. The selling centered on technology and crypto, not defense. That came after a slump: the iShares U.S. Aerospace & Defense ETF closed October 19 nearly 18% below its August 14 level on election worries, before third-quarter earnings drove a rebound.
Why that may be wrong
Defense stocks already took an election hit: the iShares U.S. Aerospace & Defense ETF fell nearly 18% from August 14 to October 19 on fears of a Democratic House. Strong third-quarter results then erased much of that, and Lockheed Martin rose 26% in October, so the stocks went into the vote with less of the spending risk in their prices. Budget changes reach contractors slowly. A new Congress takes its seats in January 2027, lawmakers debate funding first, and existing backlogs keep revenue flowing, so any effect on sales would likely take years, not months, to show in reported numbers.
The link weakens if the final count gives Democrats only narrow margins. A presidential veto could also block spending cuts. Watch the final House and Senate results over the coming weeks. Also watch whether Democratic leaders discuss defense cuts or keep Pentagon funding steady in their first budget plans after the new Congress sits in January 2027.
Defense spending rarely changes quickly. Lockheed Martin reported a record order backlog of $292.0 billion in October, including a $52.5 billion multi-year PAC-3 interceptor award, though multi-year deals still need yearly funding from Congress. Both companies grew revenue 11% in the quarter to September 30. A divided government with a presidential veto could block deep cuts. Morgan Stanley notes national-security spending often keeps bipartisan support when geopolitical tensions are high, and the Iran war is using up munitions that both companies make.
The S&P 500 was higher one year after every midterm election since the early 1980s. That held even when markets swung sharply in the days around the vote.
Voters picked a new Congress on November 3, and early counts pointed to strong Democratic gains. Congress controls federal spending. A change in who holds it can shift where government money goes, including how much the military gets.
Analysts warned defense stocks could come under pressure if a Democratic Congress limited defense spending. Democratic leaders have not announced cuts. The Pentagon can only buy what Congress pays for, so a smaller budget means fewer new orders for jets, missiles and other weapons.
Lockheed Martin (LMT) and RTX Corporation (RTX) both depend heavily on the defense budget. RTX also has a large commercial aircraft business, through Collins and Pratt & Whitney, that a defense budget cut would not touch. A new Congress only takes its seats in January 2027, and existing backlogs mean any effect on sales would likely take years, not months.
Earlier connections in the same sector that share a theme with this one.
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