Defense firms fall as Democratic victory stokes fears of tighter Pentagon budget

By Aatreyee Dasgupta

Nov 4 (Reuters) - US defense shares fell on Wednesday as the Democrats' resounding midterm election victory stoked concerns about increased pressure on the Pentagon's spending plans.

Shares of Lockheed Martin LMT.N were down 6.5%, RTX RTX.N declined over 4% and L3Harris Technologies LHX.N fell nearly 8% in morning trading. General Dynamics GD.N and Northrop Grumman NOC.N also fell 3% to 5%.

The sector has benefited from President Donald Trump's call for a $1.5 trillion US military budget for 2027, well above the currently approved $901 billion level, and the Iran war, which has fueled demand for missiles, air-defense systems and other weapons.

Analysts said a Democratic-led House could subject defense budgets and new programs to greater scrutiny even if support for military modernization remains broadly intact.

Jefferies analysts said in a note that they expect the 2027 defense budget to be closer to the House's roughly $1.15 trillion proposal than the administration's $1.5 trillion request.

Companies, including RTX and Lockheed, reported upbeat quarterly results in October and record backlogs as governments moved to replenish stockpiles and bolster military readiness.

But the sector's stocks have since given up much of those gains as investors grew skeptical of such spending increases becoming reality.

Including Wednesday's declines, the S&P 500 Aerospace & Defense sub-index .SPLRCAERO is down nearly 1% this year, while the Dow Jones US Aerospace & Defense sub-index .DJUSAE is down 3.4%.