US Midterm Elections Become a "Touchstone" for Defense Stocks: Trillion-Dollar Defense Budget Expansion Faces Congress Test
The U.S. midterm elections are becoming a crucial test of investors' sentiment towards the rapidly growing defense sector.
According to Zhihu Finance APP, the U.S. midterm elections are becoming a key test of investors' sentiment toward the rapidly growing defense sector. Market observers note that U.S. President Trump is seeking to raise the defense budget by over 40% to about 1.5 trillion dollars, but whether this plan can be implemented depends largely on whether the Republican Party can retain control of Congress.
Sheila Kayaoglu, Managing Director of Equity Research at Jefferies Financial Group, said on Wednesday: “This is a significant risk.”
Despite rising political uncertainty, those bullish on the defense sector believe opportunities remain. Wars in Europe and the Middle East are depleting weapons stockpiles, and traditional defense contractors are struggling to replenish these stocks quickly, which is supporting demand for the relevant industries.
Ward McNally, founder and managing partner of Chicago private equity firm McNally Capital, stated: “This administration has always supported public-private cooperation, which is beneficial for all participants, whether early-stage tech companies or more mature businesses.”
New technologies used in conflict zones, such as drones, as well as components and supply chains in the defense sector, are all areas of interest for investors.
Anita Antenucci, founder and managing partner of consulting and commercial banking firm 3Wire Partners, said: “From raw materials to metal components to defense electronics, these are all at the top of the watch list.”
Several recent polls show that in generic ballot tests for the congressional midterm elections, Democratic candidates’ support rate is significantly higher than that of Republicans. Prediction markets and institutional analysts generally believe Democrats are highly likely to retake the House of Representatives, while control of the Senate remains uncertain. Prices of related contracts on prediction market Polymarket indicate a market-implied probability of around 65% that Democrats will reclaim control of the Senate.
Investors have already begun positioning in advance for scenarios where Democrats may control one or both chambers of Congress after the midterm elections. If the Democrats gain control, prolonged budget wrangling and funding delays could intensify further, putting greater pressure on U.S. defense stocks. In terms of share price performance, after two consecutive years of robust gains, U.S. defense stocks have hit a bottleneck this year. The iShares U.S. Aerospace & Defense ETF is down nearly 5% year-to-date, sharply underperforming the S&P 500 index, which is up 14% over the same period.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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In September, Japanese investors withdrew from foreign bond markets for the second consecutive month.
Reuters, October 8 – In September, Japanese investors became net sellers of foreign bonds for the second consecutive month, driven by rising borrowing costs in the US and Europe, as well as increasingly attractive domestic yields that prompted them to withdraw from overseas bond markets. Data released by Japan's Ministry of Finance on Tuesday showed that Japanese investors were net sellers of 969 billion yen ($613 million) in foreign bonds last month, which was lower than the previous month's net sales of 1.16 trillion yen. They net sold 1.43 trillion yen in long-term foreign currency bonds—a six-month high—while purchasing about 457 billion yen in short-term notes. The increase in Japanese interest rates is beginning to attract some of the country's vast overseas investments back home, marking a significant shift in global capital flows. Year to date, Japanese investors have net sold about 5.08 trillion yen in foreign bonds, the highest since 2022. This capital outflow could support the yen’s exchange rate and put pressure on bond markets that have long considered Japan a major buyer. Soaring energy costs have heightened inflation concerns, prompting the Federal Reserve (FED) and the European Central Bank to raise interest rates in September, which has further pressured global bond markets. Earlier this week, Japan's benchmark 10-year government bond yield rose to 3.122%, its highest in 30 years, increasing the appeal of domestic bonds. In September, led by the Bank of Japan, Japanese institutions sold a net 2.49 trillion yen in long-term foreign bonds, a seven-month high. Life insurance companies and investment trust managers also recorded net sales of 288.6 billion yen and 200.1 billion yen respectively. However, trust accounts net purchased 1.2 trillion yen in long-term foreign currency bonds, highlighting divergent investment strategies among Japanese institutional investors. Another Bank of Japan report showed that in the first eight months of this year, Japanese investors net sold 4.74 trillion yen in US Treasuries, while net purchasing 355.85 billion yen in European bonds. Within Europe, Japanese investors net bought 329.82 billion yen in Italian bonds, while net selling 208.59 billion yen and 94.25 billion yen in French and German bonds, respectively. (1 US dollar = 158.1400 yen)
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