The 2026 U.S. midterm elections have reshaped expectations across Wall Street, putting pressure on defense stocks while renewing interest in precious metals and critical minerals. For investors, the question is whether the market’s reaction reflects lasting policy changes or creates opportunities in companies whose shares have declined.
Democrats secured control of both chambers of Congress in the November 3 elections, establishing a divided government with President Donald Trump remaining in the White House. The outcome raises expectations for increased congressional oversight, more difficult budget negotiations, and potential legislative gridlock over the next two years.
Defense contractors were among the sectors facing selling pressure. Shares of Lockheed Martin, Northrop Grumman, RTX, and L3Harris declined as investors reconsidered expectations for significant increases in Pentagon spending.
The Trump administration had proposed a $1.5 trillion defense budget for fiscal 2027, substantially above previously approved spending levels. With Democrats controlling Congress, investors anticipate a more restrained approach to defense appropriations.
However, slower spending growth does not necessarily mean reduced military investment. Geopolitical tensions, military modernization, and demand for advanced defense technologies remain important long-term priorities.
That distinction raises an interesting question: Has the defense selloff created selective bargain-hunting opportunities?
Kratos Defense & Security Solutions (NASDAQ: KTOS) provides one example. The company specializes in unmanned aircraft, propulsion technologies, and national security systems.
Despite recent share-price weakness, Kratos reported third-quarter revenue of $471.8 million, representing 35.7% year-over-year growth. The company also announced more than $1 billion in quarterly bookings and raised its full-year guidance.
These results suggest that underlying business momentum can remain strong even when political developments pressure valuations. Nevertheless, investors must weigh future defense procurement decisions, program execution, and valuation risks before concluding that a stock is undervalued.
Beyond defense contractors, the election has renewed attention on critical minerals and domestic supply chains.
Reducing dependence on foreign suppliers remains strategically important for defense systems, batteries, electronics, and industrial manufacturing. These priorities have attracted bipartisan support, suggesting that investment in domestic resources could continue despite political disagreements.
First Phosphate (PHOS), another emerging growth company, is developing phosphate resources intended to support North American battery manufacturing. Its position within the critical-minerals supply chain illustrates how national security investment extends beyond traditional defense companies.
Resolution Minerals (RML) provides exposure to mineral exploration and resource development. Its prospects depend on exploration results, project economics, financing, and commodity market conditions.
Although both companies face the risks associated with development-stage mining businesses, their exposure to strategically important resources could attract investor attention as domestic supply chains remain a national priority.
The election also strengthens the longer-term investment debate surrounding precious metals.
After two years of limited progress toward addressing America’s fiscal challenges, investors face the possibility that substantial deficits, growing federal debt, and rising interest expenses will continue under divided government.
Meaningful fiscal reform may become more difficult as lawmakers negotiate competing priorities involving taxes, spending, and government borrowing.
For investors concerned about fiscal sustainability and the purchasing power of the dollar, gold and silver may remain attractive portfolio diversifiers.
Gold has historically attracted demand during periods of monetary uncertainty, geopolitical instability, and concerns about government finances. Central bank purchases and efforts to diversify reserves also contribute to its longer-term investment appeal.
However, precious metals are not immune to volatility. Higher real interest rates, a stronger dollar, and changing investment flows can pressure prices even when fiscal concerns remain elevated.
Mining stocks introduce additional considerations. Rising commodity prices can improve project economics, but exploration companies must still navigate permitting, financing, development costs, and execution risks.
Ultimately, the midterm elections may create more opportunities through changing investor expectations than through immediate policy changes.
Defense companies with strong backlogs could remain resilient despite political uncertainty. Critical-minerals developers may benefit from continued supply-chain investment, while precious metals could retain their appeal as concerns about federal debt persist.
For small-cap investors, the key is distinguishing temporary political selling pressure from lasting changes in company fundamentals. The coming months will determine whether the post-election weakness represents justified repricing or an opportunity for selective bargain hunting.
