Defense Stocks Slide After Democratic Midterm Wins, Analyst Flags Buying Opportunity

Defense stocks declined Wednesday after Democrats won control of both chambers of Congress in the midterm elections, fueling concerns that military spending could face stronger political scrutiny.

Shares of major defense contractors pulled back, with Lockheed Martin falling 3.6%, L3Harris declining more than 2%, and RTX Corporation and Northrop Grumman each dropping more than 3%. The selling reflected broader investor caution over how a potential shift in congressional leadership could affect defense contracts and federal funding priorities.

Wolfe Research analyst Myles Walton said in a Wednesday research note that a Democratic sweep was a “headline negative” for defense stocks. He suggested the initial market reaction could be “potentially short-lived,” pointing to a historical pattern in which defense contractors recovered from election-driven selloffs as military spending continued to rise.

< p>Walton referenced the 2006 midterm elections, when defense stocks dipped roughly 2% before recovering. He noted that despite changes in congressional leadership, Democrats ultimately supported increased spending to fund U.S. operations in Iraq, and that the current environment may be similar given ongoing conflicts involving Iran and Russia and Ukraine.

< p>Wolfe Research also said defense valuations had likely “bottomed multiple-wise” since the start of the Iran conflict, drawing comparisons to stock behavior during the 2018 midterm elections. The firm added that the fiscal 2027 defense budget would be a near-term catalyst, with Republicans potentially moving quickly during the lame duck session to approve a spending package.

< p>Wolfe argued that replacing Defense Secretary Pete Hegseth with a nominee capable of selling and passing a defense budget to Congress would be the “most bullish path forward” for defense spending.

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