By Shashut Chauhan and Anna Pruchnika
Jan 8 (Reuters) – Global defense stocks climbed 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 on Wednesday after falling after Trump threatened to withhold dividend payments or share buybacks to U.S. contractors like RTX unless they speed up arms production.
Trump on Wednesday said the 2027 U.S. military budget should be $1.5 trillion, significantly higher than the $901 billion approved for this year.
“Management would still need to approve any major boost before midterms and with a substantial amount of last year’s reconciliation money, with the additional funding likely to prolong growth rather than fuel a massive near-term spike in sales,” JPMorgan 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 the House of Representatives, have shown little appetite to object to the president’s spending plans.
US defense majors Northrop Grumman and Lockheed Martin rose around 7 percent in premarket trading. Both stocks slipped around 5% on Wednesday.
RTX rose 4.6 percent and L3 Harris Technologies rose 6.2 percent, while general dynamics was up 5.5 percent in light trading.
Smaller defense firms Kratos Defense and Aerovironment climbed 8.8 percent and 7.7 percent, respectively.
However, European defense companies started to lose steam after the opening of the session. The index for aerospace and defense companies was last up 1.1 percent, having jumped 2.1 percent to hit an all-time high.
The index has rallied sharply after Russia’s 2022 full-scale attack, fueled by the prospect of more spending on defense in Europe.
Despite a pullback since October, it rallied nearly 57 percent last year and started 2026 on a strong footing as U.S. military action in Venezuela and Trump’s comments — fueled sentiment in Greenland.
“Geopolitics is the inevitable story of 2026 so far,” said Neil Wilson, UK investor strategist at Saxo Bank.
“There are clearly defensive stock plays – with rare earths.”
BAE Systems – Britain’s biggest defense company – was last, up 5.5% after jumping nearly 7% earlier, while Italy’s Leonardo, Sweden’s Saab, Germany’s Rheinmetall, all rose between 1.5% and 2.7% in the ranks.
Risk of intimidation on profits and buybacks
Share buybacks are common in defensive firms, and pay multiple dividends. In October, for example, Lockheed increased its dividend for the 23rd year in a row to $3.45 per share. It also authorized its $2 billion buyback, bringing the total amount pledged for repurchases to $9.1 billion.