Defense Stocks Are Tumbling as Wall Street Bets on a Democratic Sweep
Wall Street is pricing in a Democratic sweep of Congress, and aerospace and defense stocks are paying the price, but the damage is hitting some contractors far harder than others in ways that reveal exactly which programs hang in the…
The iShares U.S. Aerospace & Defense ETF (CBOE:ITA) closed at $207.76 on Monday, October 19, 2026. That was a drop of 0.63% on the day and 17.86% below its August 14 close of $252.92. Northrop Grumman (NYSE:NOC | NOC Price Prediction) fell 1.77%, while Lockheed Martin (NYSE:LMT) slipped 0.70% and RTX (NYSE:RTX) lost 0.93%.
Investors keep pointing to the November 3 midterms as the reason. On prediction market Polymarket, contracts on Democratic control of the House traded at 0.915 as of October 20, 2026, and contracts on Democratic control of the Senate traded at 0.645. Those prices put Democrats ahead in both chambers.
Higher interest rates and AI-driven swings in the broader market are also weighing on the group, so the election is only one pressure.
What a Democratic Congress Could Realistically Cut
Donald J. Trump said on January 7, 2026, that the 2027 military budget should be $1.5 trillion, not $1 trillion. The request that followed includes a ~42% increase and puts $756.8 billion toward investment in capabilities, with shipbuilding, Golden Dome missile defense, drones, and munitions near the top of the list.
The request still needs approval, because Congress sets the final spending levels. A Democratic majority could trim the proposed $500 billion increase, slow new programs, or force continuing resolutions (stopgap bills that freeze spending at the prior year’s level). Munitions, readiness, and allied replenishment have drawn support from both parties and look the safest from cuts.
Why Northrop Is Taking the Hardest Hit
Northrop closed at $510.65, 34% below its 52-week high of $774.00. It is down 9.34% year-to-date and 12.67% over one year, because its growth depends on the B-21 bomber and the Sentinel ICBM, two large strategic programs that sit at the center of any fight over new spending.
Its backlog still hit a record $104.69 billion in the second quarter. In July, its chief executive said the House and Senate Armed Services Committees and the House Appropriations Committee each supported “$1.1 trillion in the base budget for the Department of War”.
Lockheed and RTX Show How Uneven the Damage Is
Lockheed closed at $548.23, 21% below its $692.00 high, yet it is still up 15.41% year to date and 13.62% over one year. Its record $230.42 billion backlog includes a $35 billion THAAD interceptor contract, which ties much of its revenue to missiles that both the Pentagon and U.S. allies want.
RTX closed at $192.11, up 5.88% for the year, helped by a commercial aerospace business that Congress has no say over. Rearmament in Europe and the Indo-Pacific also gives all three companies foreign demand that a U.S. midterm reaches only indirectly.
Upcoming Earnings Reports Will Test the Election Story
Northrop and RTX are expected to report before the open on October 20, and Lockheed is expected on October 22. Backlog, book-to-bill (new orders compared with revenue billed), and guidance will show whether demand is holding up whatever happens in the election.
Valuations already reflect some doubt. Northrop trades near 17 times forward earnings and Lockheed near 16, which are modest multiples for companies that raised their 2026 guidance in July.
What Defense Investors Should Watch After the Election
A Democratic Congress could cut the topline and delay new programs, and Northrop has the most exposure to that. The optimistic view is stronger, because multiyear backlogs, munitions funding with support from both parties, and foreign demand all soften any cut to a request that never became law.
The theme still has fundamental support after this drop, and Lockheed has held up better than the ETF because its missile-heavy mix has drawn the steadiest demand. If ITA closes below its 52-week low of $195.71 after the November 3 election, the market is indicating deeper cuts than this view expects.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
