The recent TUNA transaction has sparked a turbulent week for defense shares following Trump’s newest wave of actions

The Shift from TACO to TUNA: A Tumultuous Week for Defense Stocks

This week, defense stocks have been dominated by what some are calling the "TUNA trade," moving away from the once-popular "TACO trade."

• Initially, the sector took a hit after President Trump announced intentions to prohibit buybacks and dividends among defense firms.
• However, the market's downturn was soon countered when Trump pledged to ramp up military spending.

Understanding the TACO and TUNA Trades

The TACO trade—short for "Trump Always Chickens Out"—became a hallmark of the 2025 market. The pattern was simple: whenever the market reacted negatively to a Trump policy, especially those involving tariffs, the president would often backtrack to calm investors.

This week, a similar pattern unfolded in the defense sector, but with its own unique developments. Here’s a breakdown of Wednesday afternoon’s key moments:

• 2:08 p.m. ET — Trump calls on defense contractors to halt share buybacks, suspend dividend payments, and limit executive compensation to $5 million. This announcement triggered a sharp decline in shares of major players like General Dynamics, Northrop Grumman, Lockheed Martin, and RTX (Raytheon's parent company).
• 4:02 p.m. ET — Trump singles out Raytheon, threatening to sever government contracts due to what he sees as insufficient investment from the company.
• 4:17 p.m. ET — Trump announces plans to increase the 2027 U.S. defense budget to $1.5 trillion.

That final announcement, coming just over two hours after his initial comments, sparked a surge in defense stocks the following day. The promise of a substantial boost in military funding helped erase the earlier losses caused by the president's criticism.

From TACO to TUNA: A New Market Dynamic

This wasn’t a textbook TACO trade, where a policy is simply reversed. Instead, it’s what could be dubbed the TUNA trade: Trump Usually Negates Announcements. Rather than retracting his earlier statements, Trump balanced negative news with a positive countermeasure, creating a different kind of market response.

Lingering Uncertainty and Analyst Perspectives

This episode has left investors with lingering questions about the sector’s future. The initial reaction was swift buying and selling, with deeper analysis coming later. What lies ahead for defense stocks in the long run?

Most Wall Street experts believe that the anticipated increase in military spending will likely counteract any negative effects from new financial restrictions.

“These changes are meaningful but not overly harsh,” commented JPMorgan analyst Seth Seifman. He added, “A potential budget boost could support ongoing growth and help soften the impact of the executive order.”

Ken Herbert, an analyst at RBC Capital Markets, believes that larger defense firms will feel the pressure more than smaller, tech-focused defense companies, which he expects to outperform. “Major defense contractors will likely try to minimize risk by locking in long-term purchase agreements wherever possible,” he noted.

Additional Analyst Insights

Jefferies analyst Sheila Kahyaoglu described Trump’s remarks as an “overreach,” suggesting they accelerated a shift that was already underway. “The industry has made it clear it’s prepared to invest when demand signals are more transparent,” she said.

With a proposed $1.5 trillion defense budget for 2027, the outlook appears promising—provided everything goes as planned. If so, defense stocks could see further gains in the future.