How Rearmament and Disarmament Cycles Shaped Defence Industry Valuations (1945–2025)

Policies of rearmament and disarmament since World War II have driven pronounced cycles in military spending that heavily influenced the financial fortunes of major defence companies. This report traces the period 1945–2025 in the United States and Europe, examining how political decisions on military expenditure translated into market outcomes for key defence firms (e.g. Lockheed Martin, Northrop Grumman, Raytheon, Boeing Defense, BAE Systems, Airbus Defence, Leonardo, Thales, Rheinmetall, Saab). We construct a chronological timeline of arms build-ups and drawdowns, analyze their impact on defence contractors’ valuations and performance, identify recurring patterns (including lags between political shifts and company outcomes), and assess how factors like public opinion, debt and fiscal constraints have moderated these cycles. The goal is to provide a historical framework for investors and decision-makers to understand and anticipate the defence sector’s reaction to political-military cycles.

Post-WWII Demobilization and Early Cold War Rearmament (1945–1955)

After 1945, the Allied nations rapidly demobilized large wartime forces. U.S. military outlays plunged from ~43% of GDP in 1944 to well under 10% by the late 1940s, reflecting a political desire to shift resources to peacetime needs. Defence firms initially struggled with order cancellations and factory closures as the “arsenal of democracy” shrank. However, the Cold War soon spurred rearmament. The outbreak of the Korean War (1950–1953) triggered an abrupt surge in spending: U.S. defense expenditure peaked at 15% of GDP in 1952, its highest post-WWII level, as America and its allies rearmed to contain communism. This first Cold War build-up greatly benefited U.S. aerospace and arms manufacturers – new jet fighters, tanks, and munitions contracts flowed to companies like Lockheed and General Dynamics. The boost to revenues and backlogs lifted defence industry profits and, correspondingly, equity valuations. Many defence stocks outperformed during the Korean War years as military procurement soared.