Flyby: Defense Budget Catalysts – Dates to Watch

Research evidence excerpt

Flyby: Defense Budget Catalysts – Dates to Watch

Update

June 26, 2026 10:00 AM GMT

Morgan Stanley & Co. LLCMAerospace & Defense | North America Kristine T Liwag

Equity Analyst

Flyby: Defense Budget Catalysts Kristine.Liwag@morganstanley.comJustin M Lang +1 212 761-2980

Justin.Lang@morganstanley.com +1 212 761-6251

– Dates to Watch Jason T Holcomb

Research Associate

Jason.Holcomb@morganstanley.com +1 212 761-5592

In this week’s Flyby, we consider key events / dates to watch Gabrielle Knafelman

regarding US defense spending. While we acknowledge ResearchGaby.Knafelman@morganstanley.comAssociate +1 212 761-4838

reconciliation funding uncertainty, investor expectations, in our Shaina C Zuber

view, have grown too bearish. We remain constructive the ResearchShaina.Zuber@morganstanley.comAssociate +1 212 761-6353

sector.

Aerospace

North America

Market Underappreciates $1.1tn FY2027 Defense budget Industry View Attractive

Defense

The market has increasingly focused on legislative uncertainty and is North America

underappreciating the likelihood that the ~$1.1tn FY2027 base Defense budget Industry View Attractive

ultimately becomes law. With the defense sector having materially underperformed Key Stories in MS Research:

the S&P 500 year-to-date, we believe investor expectations have become too Aerospace & Defense: Flyby: A Busy Week in

bearish regarding FY2027 funding. We view the ~$1.1tn base budget as the minimum Aerospace & Defense: US-Iran MoU, US Air

funding outcome for the sector, which would still represent meaningful growth Force CCA Award, & More

versus the FY2026 enacted budget of $839.2bn and still above the $1tn in FY2026 Defense: Reflections from Morgan Stanley’s

(which includes reconciliation).