Defense Stocks Are Getting Hammered. Wall Street May Be Missing the Bigger Picture
America's biggest defense contractors have billions in orders lined up, yet their stocks are struggling to win over Wall Street. Investors are looking past record backlogs at Northrop Grumman and RTX, worried that November's midterm elections could bring defense spending cuts in 2027. The question is whether those fears outweigh the years of business already on the books.
Election bets are rattling investors
Wall Street is increasingly betting that Democrats will gain control of Congress in the Nov. 3 midterms. As of Oct. 20, Polymarket contracts put the implied probability of Democrats winning the House at 91.5%, with the Senate at 64.5%.
Investors worry that a Democratic Congress could reduce defense spending or delay major weapons programs. Northrop Grumman looks particularly vulnerable because of its exposure to expensive development projects.
That uncertainty is weighing on valuations. Northrop trades at roughly 17x forward earnings, while Lockheed Martin sits near 16x, despite both companies raising their 2026 guidance in July.
The contracts keep coming
The concern over future budgets looks quite different from what's happening in the order books. Northrop ended September with a record $109.6B backlog after quarterly sales climbed 7% to $11.1B.
New contract awards reached $16.4B, or 1.5x the company's quarterly sales. That included $2B for the Sentinel missile program and $1.4B for Virginia-class submarines.
RTX has an even larger cushion. The company reported $25B in adjusted sales, with organic growth of 12%, while its backlog jumped 36% to a record $340B.
Roughly $37B in multiyear Tomahawk and AMRAAM missile contracts helped drive those orders. RTX also raised its adjusted earnings outlook to $7.65–$7.75 per share, up from $7.10–$7.25.
Defense contractor backlogs ($B)
Total order backlog by company after the latest quarterly reports, as of Oct. 20, 2026. Lockheed figure is from its prior report.
Bar chart. Backlog (USD billions). RTX ($RTX): Backlog (USD billions) $340. Lockheed Martin ($LMT): Backlog (USD billions) $230. Northrop Grumman ($NOC): Backlog (USD billions) $110.
Lockheed, meanwhile, has a backlog of approximately $230B, supported by a $35B contract for its THAAD missile defense system. Investors will get a fresh look at its numbers when the company reports on Oct. 22.
Wall Street can't agree
The question isn't whether defense companies have enough work today. It's how much of that demand will survive a potential change in Washington.
Vertical Research recently upgraded Lockheed to buy, arguing that missile spending continues to enjoy support from both parties. Analyst Robert Stallard also believes investors have already accounted for much of the political uncertainty.
Barclays is less convinced. The bank initiated coverage of Northrop with the equivalent of a sell rating, warning that defense budgets have more room to disappoint investors than exceed expectations. It was more neutral on Lockheed despite the company's missile exposure.
Where analysts stand on the defense primes
Recent rating calls and the reasoning behind them, as of Oct. 15, 2026.
| Firm | Company | Rating | Reasoning |
|---|---|---|---|
| Vertical Research | Lockheed Martin | Buy (upgrade) | Bipartisan support for missile spending |
| Barclays | Northrop Grumman | Sell equivalent | More downside than upside to US defense spending |
| Barclays | Lockheed Martin | Hold equivalent | Missile exposure not enough for a buy |
Some fund managers are taking advantage of the pullback anyway. GE Aerospace, Lockheed, Northrop, and L3Harris have attracted fresh buying, alongside Huntington Ingalls and Textron.
Where the opportunities lie
Not every defense contractor faces the same political risk. Companies supplying missiles and ammunition have a stronger case because their orders stretch years into the future and the programs generally enjoy bipartisan support.
That puts RTX and Lockheed in a better position than companies heavily dependent on new development projects. Northrop's Sentinel program, for example, faces greater uncertainty if Congress decides to rethink spending priorities.
Lockheed's Oct. 22 earnings report will offer the next useful comparison, particularly since Northrop and RTX have already reported record backlogs. For the moment, two of the three largest defense contractors have confirmed that demand remains strong.
The broader picture hasn't changed much either. Countries are continuing to increase military spending as security concerns grow worldwide. Washington's next budget could determine which contractors benefit most, but the billions already committed to existing programs give investors a reason to look beyond November's election.
