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.”

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.

The Bank of Japan on Thursday struck an increasingly confident tone on the state of the economy, saying regional conditions were improving gradually and that many companies see the need to keep raising wages.

This is seen as a key signal that the central bank believes the foundations for further interest rate hikes are steadily falling into place.

In its quarterly assessment based on reports from regional branch managers, the BOJ maintained its economic view for all nine regions, unchanged from three months earlier, describing them as either “picking up” or “recovering gradually.” The findings reinforce the bank’s view that Japan is moving closer to a durable cycle of rising wages and prices, even as external risks mount.

At the same time, central bank officials cautioned that escalating tensions with China could become a new drag on Japan’s still-fragile recovery, particularly given the deep supply chain ties between the two economies. While the impact has so far been limited, some executives warned it could begin to spread across industries.

“We haven’t heard of any severe damage so far. But a wide range of manufacturers and non-manufacturers say the impact could appear ahead,” said Hiroshi Kamiguchi, head of the BOJ’s Nagoya branch, which oversees a region anchored by Toyota and its extensive supplier network. He added that some firms were increasingly wary of China’s export restrictions and how they might ripple through production and procurement.

Kamiguchi also warned that excessively volatile moves in the yen could hurt business sentiment and economic activity, echoing concerns within the BOJ that currency weakness can fuel import-driven inflation while squeezing households and smaller firms.

Overall, however, the tone of the regional survey was one of cautious optimism. The BOJ said many companies plan to raise wages in the 2026 fiscal year at roughly the same pace as in 2025, reflecting robust corporate profits and a persistently tight labor market. This continuity in wage-setting is particularly significant for policymakers, who have long argued that sustained pay growth is essential for normalizing monetary policy after decades of ultra-loose conditions.

The survey also showed that firms across many regions continue to pass higher costs onto consumers. Companies cited rising input prices, labor costs, and distribution expenses, with some noting they were considering further price hikes to reflect the impact of the yen’s recent declines. This suggests inflationary pressures remain embedded in the economy, even as global growth slows.

The assessment underlines the BOJ’s growing confidence that Japan can withstand headwinds from higher U.S. tariffs. While some regions reported weaker exports and output due to tariff effects and tougher competition from Asian rivals, others pointed to solid demand, particularly for artificial intelligence-related products, which is helping support factory orders and investment.

“While some regions said exports and output were weakening due to the impact of U.S. tariffs and intensifying competition from Asian companies, others said firms were enjoying solid orders reflecting increasing global demand mainly for AI-related goods,” the BOJ said in its summary.

Developments in China remain a key area of watch. Several regions reported that restrictions on travel to Japan following diplomatic tensions had so far had only a limited impact on domestic demand. Kazuhiro Masaki, head of the BOJ’s Osaka branch, said some hotels and retailers had seen sales decline due to fewer Chinese group tourists, but that the shortfall was largely offset by steady inflows from other countries. Still, some firms fear the negative effects could widen if tensions persist.

The regional reports will feed directly into the BOJ board’s review of its quarterly growth and inflation outlook at its next policy meeting on January 22–23. Many analysts expect the central bank to keep rates unchanged this month, but the underlying message from the regions supports the case for further tightening later this year.

The BOJ recently raised its policy rate to 0.75% from 0.5%, the highest level in three decades, marking another step away from years of extraordinary monetary support. Even after that move, real interest rates remain deeply negative, with consumer inflation having exceeded the BOJ’s 2% target for nearly four years.

Minutes from the BOJ’s December meeting showed some board members growing uneasy about the inflationary effects of a weak yen, which raises the cost of imports and weighs on household purchasing power. Masaki said companies in western Japan appeared to be taking higher borrowing costs in stride, seeing them as a natural consequence of sustained wage gains and rising prices.

“The situation has changed dramatically from the time Japan was suffering from deflation, and had seen wages or prices barely rise,” he said.

However, the BOJ’s challenge now is balancing its increasing confidence in domestic momentum with mounting geopolitical and external risks. While the recovery appears to be broadening, officials are acutely aware that shocks from China, currency markets, or global trade could still test Japan’s long-awaited exit from its era of ultra-loose monetary policy.

President Donald Trump announced plans to restrict large institutional investors such as private equity firms and Wall Street-backed companies like Blackstone and Invitation Homes from purchasing additional single-family homes.

He aims to improve housing affordability for individual Americans by prioritizing people over corporations in home ownership. In a Truth Social post, Trump stated: “I am immediately taking steps to ban large institutional investors from buying more single-family homes, and I will be calling on Congress to codify it. People live in homes, not corporations.”

He plans to elaborate on this and other housing proposals at the World Economic Forum in Davos later in January. This proposal targets corporate bulk buying, which critics argue drives up prices and rents in certain markets e.g., higher concentrations in Sun Belt states.

However, experts note institutional investors own only a small share of U.S. single-family homes—estimates around 0.5–4%, so the impact on overall prices may be limited, potentially shifting purchases to smaller investors instead of first-time buyers.Stocks of affected companies, Blackstone down ~5–9%, Invitation Homes down ~6% and homebuilders dipped following the announcement.

Separately, on the same day, Trump issued an executive order targeting defense contractors. He prohibited dividends and stock buybacks for underperforming firms until they improve production speed, on-time delivery, and investment in facilities.

The order criticizes companies for prioritizing shareholder returns over military needs, directs Defense Secretary Pete Hegseth to identify underperformers, ties future contracts to performance not buyback-driven metrics, and suggests executive pay caps, around $5 million.

Trump posted: “I will not permit Dividends or Stock Buybacks for Defense Companies until such time as these problems are rectified — Likewise, for Salaries and Executive Compensation.”

This led to declines in defense stocks like RTX, Lockheed Martin. These are recent populist-leaning announcements addressing affordability and military efficiency, though implementation details especially for the housing ban, which may require legislation remain unclear.

President Trump’s January 7, 2026, proposal to ban large institutional investors (e.g., private equity firms like Blackstone, Invitation Homes) from purchasing additional single-family homes targets housing affordability, with potential effects most felt in the Sun Belt states like Florida, Georgia, Texas, Arizona, North Carolina.

Institutional Investor Concentration in the Sun Belt

Institutional investors expanded significantly after the 2008 foreclosure crisis, focusing on high-growth Sun Belt markets with strong population influx and rental demand.

Large investors owning 1,000+ homes hold 45% of their portfolios in just six Sun Belt metros (Atlanta, Phoenix, Dallas, Charlotte, Houston, Tampa). Local shares are higher than national averages: Atlanta ? ~4.2%, Dallas ? ~2.6%, Houston ? ~2.2%. Some markets (e.g., Atlanta, Jacksonville, Charlotte) ? >15% of single-family home sales influenced by large investors as of 2022 data.

Nationally, these investors own only ~3-4% of single-family rentals or ~0.5-2% of all single-family homes, but concentration in specific Sun Belt neighborhoods often lower- and middle-income areas amplifies their local impact.

Potential Positive Impacts on Sun Belt Housing

Reduced competition for buyers — Removing institutional cash buyers who often outbid individuals could make it easier for first-time and individual buyers to purchase homes, potentially slowing price growth in concentrated areas.

Lower rents long-term — Less corporate bulk buying might ease upward pressure on rents, as studies like the 2024 GAO report link high institutional concentrations to higher rents and home prices in affected geographies.

More inventory for owner-occupants — If the ban forces sell-offs of existing portfolios, it could temporarily increase supply in Sun Belt neighborhoods, adding downward pressure on prices—many of these markets e.g., Phoenix, Austin, Tampa already see price corrections from post-pandemic overbuilding and cooling demand.

Experts widely agree the overall effect on affordability would be modest, as institutional investors represent a small slice of the market: Purchases have declined ~90% since 2022 peaks due to high interest rates.

The core issue is chronic undersupply (U.S. needs 3-4 million more homes) from low construction, zoning restrictions, and locked-in low mortgages—not corporate buying. Critics note risks: Shift to smaller investors ? “Mom-and-pop” landlords (owning <10 homes) dominate ~85-90% of investor activity and could fill the void, providing little net gain for individual buyers.

Reduced new construction ? Institutional build-to-rent (BTR) communities account for ~8% of recent single-family starts; banning them could slow overall homebuilding in fast-growing Sun Belt areas, worsening supply shortages long-term by 2027-2029.

Forced sell-offs might displace renters or discourage professional management, while loopholes via smaller entities could undermine enforcement. The proposal remains in early stages, executive action planned, but likely needs Congressional legislation for permanence.

Stocks of affected firms like Blackstone, Invitation Homes dropped 5-9% on announcement day, signaling market concern, but broader Sun Belt housing trends like softening prices in overbuilt areas continue to be driven more by interest rates and supply dynamics than this policy alone. Trump plans to detail further housing proposals at Davos later in January.