The TUNA trade has stirred up a wild week for defense stocks after Trump's latest flurry

• Forget the TACO trade. It's been all about the TUNA trade in defense stocks this week.
• The sector initially sold off after President Trump said he wants to ban buybacks and dividends.
• But the sell-off was ultimately neutralized by a pledge from Trump for more military spending.

The "TACO trade," short for Trump Always Chickens Out, was one of the great market memes of 2025. Whenever the market would throw a tantrum about a Trump policy — usually related to tariffs — the president would reverse course to stem the bleeding.

A similar story has played out this week within US defense stocks, with a few unique twists. Here's the minute-by-minute recap from Wednesday afternoon:

• 2:08 p.m. ET — Trump demands defense companies stop doing share buybacks, refrain from paying out dividends, and cap executive pay at $5 million. This pushes share prices of major defense firms like General Dynamics, Northrop Grumman, Lockheed Martin, and Raytheon parent RTX sharply lower.
• 4:02 p.m. ET — Trump specifically calls out Raytheon, and threatens to cut ties with the company over a perceived lack of investment.
• 4:17 p.m. ET — Trump says he's raising the 2027 US military budget to $1.5 trillion.

It was that last statement, 2 hours and 9 minutes after Trump's first post about defense companies, that sparked a rally in those exact same defense stocks on Thursday. The optimism of a huge spending increase had offset the initial sting of industry criticism.

It wasn't a precise TACO trade situation. It was closer to something I'd like to coin as the TUNA trade: Trump Usually Negates Announcements. The president didn't outright reverse a prior statement. He countered a bearish opinion with something bullish that counterbalanced it. There's a big difference!

The volatile episode leaves questions unanswered about the future of the industry. The knee-jerk reaction from investors was to buy/sell first, then ask questions later. What does the longer term look like?

Wall Street analysts generally support the idea that the additional military spending will offset any new capital restrictions.

"The changes are significant but not necessarily draconian," said JPMorgan analyst Seth Seifman. A "potential budget increase would support sustained growth, taking some sting out of the executive order."

Ken Herbert, an analyst at RBC Capital Markets, says large-cap defense companies will feel the squeeze more than their defense-tech counterparts, which he sees outperforming.

"Defense primes will look to de-risk major program investments by securing long-term purchase agreements, where possible," he added.

Jefferies analyst Sheila Kahyaoglu called Trump's comments an "overreach" and said that they catalyzed something that was already bound to happen.

"The industry has been clear that it is ready to invest on clearer demand signals," she said.

From a demand perspective, $1.5 trillion in 2027 sounds quite appealing. If all goes according to plan — and that's a big "if" — more stock gains could be in store for defense companies.