Defense stocks staged a sharp V-shaped reversal after hours Wednesday after President Trump proposed a record $1.5 trillion US defense budget for 2027, flipping sentiment just hours after the sector sold off on threats to restrict dividends and buybacks.
The rebound carried into early Thursday trading, with major US defense names jumping across the board. Lockheed Martin $LMT ( ▲ 4.34% ) , Northrop Grumman $NOC ( ▲ 2.39% ) , and L3Harris Technologies $LHX ( ▲ 5.16% ) were each up as much as about 7% early in the session, while Huntington Ingalls Industries $HII ( ▲ 6.18% ) , General Dynamics $GD ( ▲ 1.68% ) , Boeing $BA ( ▼ 0.32% ) , and RTX $RTX ( ▲ 0.78% ) also posted gains. European defense stocks followed suit, with BAE Systems climbing more than 6%.
From selloff to surge
Earlier Wednesday, defense stocks were under heavy pressure after Trump said he would block dividends and stock buybacks for major contractors until they speed up equipment deliveries. Lockheed Martin and Northrop Grumman were both down roughly 5% at their lows.
Trump argued that weapons and equipment are “not being made fast enough,” urging defense companies to invest in new production capacity rather than return cash to shareholders. That stance was quickly formalized in a White House executive order calling for an immediate halt to dividends and buybacks until companies can deliver products on time and on budget.
The budget changes the tone
Sentiment flipped late Wednesday after Trump posted on Truth Social that he wants a $1.5 trillion military budget, calling it necessary to build a “Dream Military” amid what he described as increasingly dangerous global conditions.
If enacted, the proposal would represent roughly a 66% increase from the $901 billion defense budget authorized for 2026. Investors quickly focused on what that level of spending could mean for long-term revenue and order backlogs, outweighing near-term concerns around capital return restrictions.
Big questions still unanswered
It remains unclear whether the president has the legal authority to directly restrict dividends and buybacks at private defense contractors, and Congress would ultimately need to approve any budget increase of this scale.
Still, the violent swing in defense stocks highlights how sensitive the sector is to Washington headlines. For now, the promise of massive future spending appears to be doing more for sentiment than the threat of tighter rules on payouts.