European defense stocks slip as Democratic midterm win raises spending worries

 Shares of European defense companies fell Wednesday after Democrats won majorities in both the Senate and House in the U.S. midterm elections, raising the prospect of tighter scrutiny of military spending.

The STOXX aerospace and defense index fell about 0.7%, while the broader STOXX 600 gained 0.9% by 09:57 GMT. Among individual stocks, BAE Systems dropped about 4%, and Chemring and Avon Technologies, both with high U.S. exposure, slid 3% and 2.4%, respectively. Leonardo SpA slipped 2%. 

Thales, Babcock, Saab, and Rheinmetall shed between 2% and 3.5%.

A budget vote is unlikely before 2027. Democratic control of the House could bring military spending back under scrutiny, as Congress has yet to appropriate funds for the multibillion-dollar contracts that major defense contractors signed to replenish stockpiles.

Defense stocks rallied in January after President Donald Trump called for a $1.5 trillion military budget, well above the approved $901 billion, but have since given back most of those gains.

Elsewhere in Europe, markets rose as banks and clean energy stocks led. STOXX futures had fallen as much as 1.4% earlier before recovering as Democrats secured both chambers, and as investors reacted to Trump accepting the election results.

Bank stocks gained as investors rotated into domestically focused lenders that have lagged the broader market for much of the year. Clean energy stocks, which have borne the brunt of Trump’s policies, were the biggest gainers. Vestas jumped about 5%, Orsted gained more than 7%, and Nordex surged 5.6%.