How Trump shook up U.S. defence stocks this week

The aircraft carrier USS Dwight D. Eisenhower and other warships crosses the Strait of Hormuz into the Persian Gulf on Sunday, Nov. 26, 2023. (Information Technician Second Class Ruskin Naval/U.S. navy via AP)

U.S. President Donald Trump caused some commotion for investors in U.S. defence contractors this week. First, Trump criticized the companies for taking too long to produce military equipment and also failing to maintain it while at the same time paying out billions in dividends and stock buybacks to investors. But then the president proposed a US$1.5 trillion defence budget for 2027, a big jump from the $901 billion provisioned for 2026.

Shares of Lockheed Martin, General Dynamics, Northrop Grumman and Raytheon parent RTX fell after the criticism but then roared back at the prospect of more lucrative government contracts down the road.

A look at Trump’s comments and how they relate to U.S. defence contractors.

Dividends and buybacks

Trump on Truth Social: “While we make the best Military Equipment in the World (No other Country is even close!), Defense Contractors are currently issuing massive Dividends to their Shareholders and massive Stock Buybacks, at the expense and detriment of investing in Plants and Equipment. This situation will no longer be allowed or tolerated! ... Therefore, I will not permit Dividends or Stock Buybacks for Defense Companies until such time as these problems are rectified.”

Executive Compensation

Trump: “Executive Pay Packages in the Defense Industry are exorbitant an d unjustifiable ... From this moment forward, these Executives must build NEW and MODERN Production Plants, both for delivering and maintaining this important Equipment, and for building the latest Models of future Military Equipment. Until they do so, no Executive should be allowed to make in excess of $5 Million Dollars which, as high as it sounds, is a mere fraction of what they are making now.”

The budget

Trump: “ I have determined that, for the Good of our Country, especially in these very troubled and dangerous times, our Military Budget for the year 2027 should not be $1 Trillion Dollars, but rather $1.5 Trillion Dollars. This will allow us to build the “Dream Military” that we have long been entitled to and, more importantly, that will keep us SAFE and SECURE, regardless of foe.”

Shares of Lockheed Martin rose 4.6 per cent after dropping 4.8 per cent the day earlier, Northrop Grumman rose 3.5 per cent after falling 5.5 per cent and General Dynamics added 2.4 per cent after losing 4.2 per cent Wednesday. RTX, the parent of Raytheon, a contractor Trump singled out in his social media posts, rose 0.7 per cent after falling 2.5 per cent.

The Associated Press