Filmmaker David Hoffman shares footage from his feature-length documentary Sputnik Mania, which shows how the Soviet Union's launch of Sputnik in 1957 led to both the space race and the arms race -- and jump-started science and math education around the world.
The rocket that launched Sputnik-1, the R-7, was primarily developed as an ICBM. Surrounded by NATO bomber bases, the USSR decided in the early 1950s that it must have the capability of delivering a thermonuclear warhead to the American mainland. The R-7 had a range of 8000 km and carried the "Object-G" warhead weighing 5.4 tons with an explosive yield of 3.5 megatons. Due to problems with reentry systems, the first successful warhead delivery to their test range was not until March 1958, some months after Sputnik. So I am not sure I would characterize the reaction to the R-7 as just a propaganda shock . Missiles and atomic weapons were all too real.