President Donald Trump dropped a bombshell on financial markets Wednesday evening, calling for military spending to surge to $1.5 trillion in fiscal year 2027—a staggering 50% increase over current levels that would represent the most aggressive defense buildup in American history since World War II.

The announcement, made via Truth Social late Wednesday, sent defense stocks soaring in Thursday and Friday trading. Northrop Grumman and Lockheed Martin both jumped approximately 7% before the opening bell on Friday, while the broader aerospace and defense sector posted its strongest week since the start of the Russia-Ukraine war.

What Trump Is Proposing

In his social media post, Trump framed the spending surge as a necessity for national security:

"After the long and difficult negotiations with Senators, Congressmen, Secretaries, and other Political Representatives, 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, rather $1.5 Trillion Dollars."— President Donald Trump, Truth Social

The president claimed the increase would be funded entirely by tariff revenue collected under his administration's trade policies. However, this assertion has been met with significant skepticism from budget analysts across the political spectrum.

The Fiscal Reality Check

The nonpartisan Committee for a Responsible Federal Budget (CRFB) quickly analyzed the proposal and delivered a sobering assessment. According to their calculations, the $500 billion annual increase in defense spending would be nearly twice as much as expected tariff revenue, and the spending surge would push the national debt $5.8 trillion higher over the next decade.

For context, Congress approved a $901 billion defense budget for fiscal year 2026 just last month. A leap to $1.5 trillion would represent an unprecedented peacetime expansion of military capabilities.

Where the Money Would Go

While the administration has not released detailed allocations, Trump has signaled several priority areas:

  • Golden Dome Missile Defense Shield: An advanced system designed to protect against long-range missile threats, potentially costing hundreds of billions over its development lifecycle
  • Trump-Class Battleship Program: A recently unveiled naval modernization initiative that would represent the first new battleship class in decades
  • Force Readiness: Increased spending on troop training, equipment maintenance, and operational capabilities
  • Emerging Technologies: Expanded investment in hypersonic weapons, artificial intelligence, and cyber warfare capabilities

Defense Stocks Are Rallying—Here's What's Moving

The market response was immediate and emphatic. After the announcement, defense contractors saw their shares surge as investors priced in potentially massive contract expansions.

Northrop Grumman (NOC) led the rally with gains of approximately 7%, driven by expectations that its B-21 Raider stealth bomber program and various missile defense systems would see accelerated funding.

Lockheed Martin (LMT) matched those gains, boosted by its dominant position in F-35 fighter jet production and missile systems that would likely benefit from any major military expansion.

RTX Corporation (RTX) and General Dynamics (GD) also posted significant gains as investors rotated into the sector.

The Congressional Hurdle

Despite the market's enthusiastic response, significant obstacles remain. Congress must approve all defense budgets before they become law, and lawmakers have yet to pass full-year defense appropriations for fiscal 2026. The Trump administration has not formally submitted its Pentagon budget proposal to Capitol Hill.

Fiscal hawks in both parties may balk at the sheer scale of the proposed increase, particularly given ongoing concerns about the national debt, which now stands at approximately $38 trillion.

What It Means for Investors

For investors weighing exposure to the defense sector, the situation presents both opportunity and risk:

The Bull Case: If even a fraction of Trump's proposal becomes reality, defense contractors would see revenue growth unlike anything witnessed in modern peacetime. Major programs already in development could see timelines accelerated and budgets expanded significantly.

The Bear Case: Congressional approval is far from guaranteed, and the proposal may face significant pushback from deficit-focused legislators. Additionally, tariff revenue has proven volatile and may not provide a reliable funding source for sustained spending increases.

Key Defense ETFs to Watch

Investors seeking diversified exposure to the sector may consider the iShares U.S. Aerospace & Defense ETF (ITA) or the SPDR S&P Aerospace & Defense ETF (XAR), both of which hold significant positions in the contractors most likely to benefit from increased spending.

The Geopolitical Backdrop

Trump's announcement comes amid escalating international tensions. The president recently ordered a U.S. military operation targeting Venezuelan leader Nicolás Maduro, and American forces have been massing in the Caribbean Sea. These developments provide context for the administration's push to dramatically expand military capabilities.

Whether Congress agrees to fund the president's ambitious vision remains to be seen. What's certain is that the defense sector will remain in focus as this political drama unfolds in the months ahead.

Defense stocks can be volatile and are subject to political and budgetary uncertainties. Investors should consider their risk tolerance and investment horizon before making allocation decisions in this sector.