Defense stocks experienced significant declines on Wednesday following the Democratic victory in both chambers of Congress. Lockheed Martin shares fell by 7.45%, while L3Harris dropped nearly 8%, RTX declined more than 4%, and Northrop Grumman fell by 4.64%. Palantir shares also decreased, trading below $171.
Investors are adjusting expectations for the Pentagon budget, anticipating a smaller allocation than the $1.5 trillion requested by President Donald Trump for 2027. Analysts at Jefferies suggest the final figure may align closer to the House plan of approximately $1.15 trillion, compared to the currently approved $901 billion.
Political uncertainty surrounds the position of Defense Secretary Pete Hegseth. Reports indicate President Trump is consulting advisers on his future, with Florida Governor Ron DeSantis mentioned as a potential successor. White House spokeswoman Anna Kelly stated that the President maintains confidence in Hegseth.
Prediction markets reflect this instability. On Polymarket, the implied probability of Hegseth leaving his post by December 31 rose by 25 points to 42%. Additionally, data indicates a 32% chance of his departure by the end of November. Sources cited by CBS suggest that the new Democratic majorities increase the likelihood of an impeachment push.
