Ahead of President Donald Trump’s address to a joint session of Congress Tuesday night, during which he is expected to propose a military budget increase of nearly 10 percent, share prices of the largest defense companies soared.
British defense firm BAE Systems plc (BA.L) saw the biggest leap, with a 2.2 percent rise since market open on Monday, reaching $630 as of Tuesday afternoon—a level not seen in nearly two decades. European multinational Airbus Group SE (AIR.PA), airplane manufacturer Boeing Company (BA), fighter jet maker Lockheed Martin (LMT) and Virginia-based contractor Northrop Grumman Corp. (NOC) followed suit, hitting all-time highs with respective increases of 1.5 percent, 1.4 percent, 1.3 percent and 0.6 percent.
The companies’ stocks initially shot up on following reports that Trump planned to unveil a federal budget including a defense spending increase of $54 billion—money, he told “Fox & Friends” Tuesday, that “is going to come from a revved-up economy.” A similar spike occurred in the aftermath of the 2016 presidential election, although Trump’s tweets related to government contracts involving Boeing and Lockheed Martin sent their shares in both directions over the past several months.
The previous Defense Department budget, for fiscal year 2016, represented an increase to $585 billion from $560 billion in 2015, following nearly five years of slight declines in spending. In 2015, the U.S. military budget was the world’s largest—more than twice the size of its nearest competitor, China, and greater than the next seven largest military budgets combined, according to the Stockholm International Peace Research Institute, an international group dedicated to arms control and conflict research.
At Tuesday’s 9 p.m. address, Trump is expected to face opposition from Democrats balking at proposed cuts to domestic spending, but also from Republicans urging an even larger budget increase, potentially boosting the defense firms’ shares even higher.
“President Trump intends to submit a defense budget that is a mere 3 percent above President [Barack] Obama’s defense budget, which has left our military underfunded, undersized and unready to confront threats to our national security,” Sen. John McCain (R-Arizona), said in a statement Monday. “Informed by the last two years of focused oversight of the Department of Defense and our Armed Forces, House Armed Services Committee Chairman Thornberry and I agree a defense budget of $640 billion is required in fiscal year 2018 as a first step toward restoring military readiness, rebuilding our military, and reshaping our forces for the realities of 21st century warfare.”
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