US Midterm Elections Become a "Litmus Test" for Defense Stocks: Trillion-Dollar Military Spending Expansion Faces a Major Congressional Test

Title context: US Midterm Elections Become a "Litmus Test" for Defense Stocks: Trillion-Dollar Military Spending Expansion Faces a Major Congressional Test Text: The US midterm elections are becoming a key test of investor sentiment toward the rapidly growing defense sector. Market observers say that US President Trump is seeking to increase the military budget by more than 40% to about $1.5 trillion, but whether this plan can be implemented depends largely on whether Republicans can retain control of Congress. Sheila Kahyaoglu, managing director of equity research at Jefferies Financial Group, said on Wednesday: "This is a big risk." Despite rising political uncertainty, defense sector bulls believe opportunities still exist. Wars in Europe and the Middle East are depleting weapons stockpiles, and traditional defense contractors are finding it difficult to replenish these stockpiles quickly, providing demand support for related industries. Ward McNally, founder and managing partner of Chicago private equity firm McNally Capital, said: "This administration has consistently supported public-private partnerships, which is beneficial for all participants, whether they are early-stage technology companies or more mature enterprises." New technologies used in conflict zones, such as drones, as well as components and supply chains in the defense sector, are areas of investor interest. Anita Antenucci, founder and managing partner of advisory and merchant banking firm 3Wire Partners, said: "From raw materials to metal components to defense electronics, all are at the top of the watch list." A number of recent polls show that in the generic ballot test for the congressional midterm elections, support for Democratic candidates is significantly higher than for Republicans. Prediction markets and institutional analysis generally believe that it is highly likely that Democrats will retake the House of Representatives, while control of the Senate remains highly uncertain. Prices for related contracts on prediction market Polymarket show that the market-implied probability of Democrats retaking control of the Senate is about 65%. Investors have begun positioning early for a scenario in which Democrats may control one or both chambers of Congress after the midterm elections. If Democrats gain control, prolonged budget wrangling and delays in funding appropriations may further intensify, and US defense stocks will face greater pressure. In terms of share price performance, after two consecutive years of strong gains, US defense stocks have hit a bottleneck this year. The iShares US Aerospace & Defense ETF has fallen nearly 5% year to date, significantly underperforming the S&P 500, which has risen 14% over the same period.