Global defense equities climbed sharply on Thursday, with major aerospace and defense shares extending gains after U.S. President Donald Trump called for a significantly larger U.S. defense budget in 2027.
Trump’s proposal, posted on his Truth Social platform, suggests raising the U.S. military budget to $1.5 trillion, a more than 66% increase over the roughly $901 billion approved for 2026.
In his post, Trump described the proposed budget as essential to building what he called the “Dream Military” — a force capable of keeping the United States “SAFE and SECURE, regardless of foe,” citing what he characterized as “very troubled and dangerous times.”
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Investors clearly took the initiative as a bullish signal for defense spending ahead. U.S. contractors were among the top gainers in premarket trade: Northrop Grumman rose around 6–8%, Lockheed Martin climbed roughly 6–7%, RTX (parent of Raytheon) added more than 4%, and smaller specialized firms such as Kratos Defense saw even larger percentage gains. European aerospace and defense equities also strengthened, with the Stoxx Europe Aerospace & Defense index reaching new all-time highs before settling slightly lower later in the session.
Beyond Western markets, some Asian defense names participated in the broader rally, with firms such as Mitsubishi Heavy Industries and Bharat Electronics recording moderate share price gains, illustrating the global dimension of investor response.
Geopolitical Drivers Underpinning Rally
The broader geopolitical backdrop has lent additional impetus to defense sector optimism. In early January, U.S. forces carried out an operation resulting in the capture of Venezuelan President Nicolás Maduro and his wife — a dramatic escalation that has major implications for regional security dynamics and defense planning. Following the raid, the Trump administration has indicated plans to manage Venezuelan oil assets and has revived debate over U.S. strategic interests in territories such as Greenland and potential military options in Colombia.
These developments have heightened perceptions of geopolitical risk and suggested a potentially more assertive U.S. foreign policy stance, reinforcing the appeal of defense and aerospace companies whose products and services are core to military capability and sustainment.
Market Reaction: Contracts, Cash Flows, and Valuation
Analysts say the prospect of a sharp increase in baseline defense spending boosts the outlook for long-term government contracts, which are a fundamental driver of revenue for large contractors. Lockheed Martin’s extensive portfolio — including fighter jets, missile systems, and advanced space systems — is seen as particularly positioned to benefit from expanded budget allocations. Northrop Grumman’s intelligence, surveillance, and reconnaissance platforms and RTX’s radar and missile defense systems are similarly viewed as integral to an enlarged U.S. defense force structure.
European defense stocks — often tied to NATO commitments and cross-Atlantic interoperability — rallied as investors anticipated indirect benefits from stronger U.S. defense leadership and spending. Names such as BAE Systems, Leonardo, Rheinmetall, and Renk also posted meaningful gains.
While markets initially reacted enthusiastically, some caution remains over the feasibility and implementation of such a substantial budget increase. A proposal of this magnitude would require congressional approval, and budget experts have pointed to procedural, fiscal, and political hurdles. Nonetheless, the immediate reaction in equity markets reflects a pricing-in of potential future earnings growth tied to defense expenditure.
Policy and Broader Economic Implications
Trump’s budget call comes amid broader debate in Washington over defense priorities, procurement timelines, industrial base capacity, and the balance between shareholder returns and investment in manufacturing. Recent Trump commentary has also criticized certain defense firms for stock buybacks and dividend policies at times when military equipment deliveries are perceived to lag, suggesting potential executive and regulatory scrutiny in addition to spending shifts.
Longer-term implications for global markets could include a recalibration of risk assets if investors increasingly favor sectors tied to government spending over cyclical areas more sensitive to economic growth. In the United States, a surge in defense spending could also influence inflation expectations, capital allocation, and fiscal policy debates heading into election years.