By Shashwat Chauhan and Anna Pruchnicka
Jan 8 (Reuters) – Global defense stocks rose on Thursday after President Donald Trump called for a substantial increase in the U.S. military budget, fueling a fresh rally amid ongoing geopolitical tensions.
U.S. defense companies rebounded after falling on Wednesday following Trump’s threat to prevent U.S. contractors like RTX from paying dividends or buying back shares until they ramp up weapons production.
Trump said Wednesday that the US military budget for 2027 should be $1.5 trillion, significantly higher than the $901 billion approved for this year.
“The administration would need to approve any major boost before the midterm elections, and with plenty of last year’s reconciliation money still to be awarded, additional funding would prolong growth rather than fuel a massive increase in near-term sales,” JP Morgan analysts said in a note.
While congressional authorization for such an increase could pose a challenge, Trump’s Republicans, who hold slim majorities in both the Senate and House of Representatives, have shown little interest in opposing the president’s spending plans.
US defense companies Northrop Grumman and Lockheed Martin rose about 7% each in pre-market trading. Both stocks fell about 5% on Wednesday.
RTX rose 4.6% and L3Harris Technologies added 6.2%, while General Dynamics rose 5.5% in light trading.
Smaller defense companies Kratos Defense and AeroVironment rose 8.8% and 7.7%, respectively.
European defense companies, however, began to lose steam after rising earlier in the session. The index of aerospace and defense companies was last up 1.1%, having risen as much as 2.1% to hit a record high.
The index has rebounded sharply since Russia’s large-scale invasion of Ukraine in 2022, boosted by the prospect of higher defense spending in Europe.
Despite a pullback since October, it gained about 57% last year and entered 2026 on a solid footing as sentiment was boosted by US military action in Venezuela and Trump’s comments on Greenland.
“Geopolitics is the unavoidable story of 2026 so far,” said Neil Wilson, UK investor strategist at Saxo Bank.
“It is clear that defense actions are the bet, along with rare earths.”
BAE Systems, Britain’s largest defense company, was last up 5.5% after rising almost 7% earlier, while Italy’s Leonardo, Sweden’s SAAB, Germany’s Rheinmetall and Renk rose between 1.5% and 2.7%.
THREAT REGARDING DIVIDENDS AND BUYBACKS
Share buybacks are common among defense companies and several pay dividends. Lockheed, for example, raised its dividend for the 23rd consecutive year in October, to $3.45 per share. It also authorized the purchase of up to $2 billion of its shares, bringing the total amount pledged for buybacks to $9.1 billion.