The vote repriced the war: drone-and-missile stocks fell double digits, and Kratos reports tomorrow

The war was on the ballot, and it lost

Exit polls reported by NBC News found 74% of voters called the Iran war a crucial or major factor in their vote for Congress, and on Tuesday Democrats took the House and the Senate↗ ¹². President Trump told the Wall Street Journal "Iran was a piece of it," but named the resulting surge in oil prices, not the war, as the primary liability ¹. The same session sent the Dow up 1,569 points, its best day since April 2025, and crude oil down nearly 8% ²³. Defense went the other way.

The war-buildup supply chain fell hardest

On Wednesday's mid-session quote board, Karman Holdings, which builds shrouds for Lockheed Martin's·−7.43% — Lockheed Martin, down 7.43 percent as of its last quote THAAD missile-defense interceptors, fell 17.8%; Kratos Defense▼−10.30% — Kratos Defense, down 10.30 percent today, maker of the Valkyrie jet drone and hypersonic systems, fell 12.1%; Mercury Systems fell 11.4% ⁴. Karman's loss narrowed to about 13.5% near the close, and Lockheed fell 4.3% ²⁵. The names priced for a war buildup fell roughly two to four times as hard as the primes. Karman is down 54% this year including Wednesday, a month after signing a $218 million, seven-year THAAD agreement↗ with Lockheed ⁵.

Two funds, one stock, opposite trades

Kratos is where the disagreement is sharpest. Cathie Wood's ARK Invest added 34% to its stake in the June quarter, holding 4.67 million shares worth $233 million at quarter-end, and kept buying in October: 209,379 shares on October 7 alone↗ ⁶⁷. Jericho Capital, a $12 billion fund, sold all 2.65 million of its shares between March and June ⁶. The tape has sided with the seller: Kratos closed Tuesday at $40.99, down 43% from its March quarter-end ⁶.

The growth is real; the cash is not

The business keeps outgrowing the balance sheet. Second-quarter revenue rose 30.5% to $458.8 million↗, full-year guidance went up to $1.75 to $1.81 billion, and the company is tooling up to build 3,000 cruise-missile jet engines next year and about 40 Valkyries annually by 2028 ⁸. The catch is the funding: 2026 free cash flow is guided to a loss of $85 to $105 million, covered partly with newly sold stock ⁶⁸.

2006, or a real demand cut

The bull answer is precedent. After Democrats swept both chambers in 2006, defense stocks dipped about 2% and recovered as military budgets kept rising; Wolfe Research analyst Myles Walton calls this selloff "potentially short-lived" and points to the fiscal 2027 budget, which a lame-duck Republican Congress could still pass ³. Trump has asked for $1.5 trillion for that year ².

Wells Fargo·+2.16% — Wells Fargo, up 2.16 percent as of its last quote instead expects war-power restrictions and "minimal real spending increases" ¹. The war has not paused for the ballot: the Strait of Hormuz remains effectively closed, and U.S. strikes hit Iran's Qeshm Island on Monday↗ ¹. The market spent Wednesday discounting a war that is still being fought.

Three numbers will settle the trade

Nothing has been cut yet; the fiscal 2027 bills have not been written ⁸⁹¹⁰. Kratos reports after the close on Thursday, with management guiding third-quarter revenue to $460 to $480 million↗ and Wall Street modeling 36% growth ⁸⁹¹⁰. Three lines settle it: whether the guidance survives a Democratic Congress, whether the cash burn widens, and whether another share sale arrives. Karman reports the same day ⁵. The September-quarter 13F filings, the fund holdings reports due by November 16↗, will show whether Wood kept buying as the stock fell ⁶.