Market Insider

Trump victory puts rocket under global defense stocks

Northrop Grumman Unmanned MQ-8C Fire Scout
Source: Northrop Grumman

The shocking Donald Trump victory in the presidential election has put a rocket under defense stocks all over the world.

In the U.S., defense stocks have soared following Trump's projected victory. Shares of Northrop Grumman, Lockheed Martin and Raytheon gained about 5.4 percent, 6 percent and 7.5 percent, respectively.

These military contractors stood in sharp contrast to the majority of the U.S. market, which was trending down following the news of Trump's presidency.

Leading the way in Europe were U.K. companies BAE Systems and Cobham as well as French company Thales, which rose 3 to 4 percent.

BAE manufactures military hardware ranging from bullets to battleships and counts the U.S. as its largest customer.

Cobham manufactures military communications equipment, while 50 percent of Thales sales are military based.

In September speech, Trump called for 90,000 additional soldiers, 42 more Navy ships and 100 more modern fighter aircraft as well as increased nuclear and missile defense.

Despite Republicans retaining control of both houses of Congress, a new defense budget may not be as simple as it seems, Robert Stallard of Vertical Research Partners wrote in a note Wednesday.

'What remains to be seen is the revenue enhancing offset to this increased spending, and whether Democrats in the Senate will filibuster everything," he said.

Stallard also said there might be some delay before defense companies can start eyeing U.S. government cash.

"The first Department of Defense budget that the Trump Administration can really change would be FY19, as FY17 is almost done, and the FY18 request is due out in February of next year," he said.

During the September speech, Trump attacked both and for allowing defense spending to track to levels as a share of the economy not seen since the end of World War II.

"We currently have the smallest Army since 1940. The Navy is among the smallest it has been since 1915. And the Air Force is the smallest it has been since 1947," Trump said.

Following that speech, Mark Cancian, a former defense budget analyst for the Obama administration, wrote that Trump's military spend would equate to around $93 billion a year more than levels set by the Budget Control Act.

Trump said he wants to remove that limit and will offset the additional costs through "common sense reforms that eliminate government waste and budget gimmicks."