The End of Beginnings

Our initial view was that the Venezuelan headlines were significant from a geopolitical perspective, but they were small from market reaction perspective. Two enduring and principal questions remain for market participants: First, how will U.S. actions alter relationships between major global powers, and second, what are the implications for hydrocarbons — specifically for oil and natural gas prices.

On the first question, while the actions against ousted Venezuelan President Nicolás Maduro have precedent (e.g., the United States arrested and detained Panamanian leader Manuel Noriega in January 1990 from his home country), the connectivity between Venezuela and countries, including China and Russia, could be a diplomatic flashpoint. We have discussed currency implications of a more fractured global order, and the bond market ramifications also have our attention. With the dollar remaining the world’s reserve currency and a prominent holding within foreign treasury coffers, we continue to watch currency trends as well as how U.S. bond market auctions (i.e., when the U.S. Treasury issues new debt securities in the open market) perform. Based on U.S. Treasury data, China was the third largest holder of U.S. government bonds as of October 2025, and we are actively monitoring holding trends to assess change.¹ We want bonds to act like bonds in client portfolios (i.e., to dampen risk), but supply/demand trends can drive prices in ways textbooks don’t contemplate.

On the second question concerning energy markets, the implications are more clear. Markets anticipate more supply to eventually emerge, but the timing is more difficult to forecast given complicated mechanics. Oil service and equipment stocks have rallied this week, anticipating contracts to refresh dated Venezuelan infrastructure. Select refining companies will benefit from converting heavy, sour Venezuelan crude into more usable commercial products. Based on futures market pricing, forecast data and company reports, we see ample hydrocarbon supply and hence expect prices to remain subdued, which would help consumers.  

For context, we have recently covered the current Federal Reserve debate between inflation and employment trends, with the Fed shifting its primary concern from stubbornly high inflation to an attenuating job market last summer, made explicit during Chair Jerome Powell’s speech in Jackson Hole, Wyoming. Following a 17-month span of interest rate increases from March 2022 through July 2023, the Fed began cutting rates in September of 2024 through December of that year, pausing until September of last year, and then cutting again in December 2025. The Fed’s post-December meeting communique mentioned slowing employment before discussing inflation, leaving Fed observers to suggest labor markets retain primacy over inflation, amplifying the importance of jobs data.

This week, private data from ADP and Challenger coupled with official Bureau of Labor Statistics data gave a mixed but, on balance, upbeat reading on jobs. While headlines focus on more familiar variables like the unemployment rate (which was lower than consensus forecasts, with last month’s reading revised lower) or the number of net new payrolls (which were lower than forecasts, with last month’s reading also revised lower), as investors, we pay more attention to the broader trends. Average hourly earnings were higher than expected, job cut and layoff trends were more favorable for workers, and we did see some positive recoveries within key sectors and demographics. However, based on seasonally adjusted data, 2025 represented the weakest net addition to total payrolls going back to the 2008-09 crisis, excluding the 2020 pandemic year. As we publish this, markets now anticipate a little more than two interest rate cuts for calendar year 2026, with many expecting Chair Powell’s replacement to be a champion for lower rates.      

One follow-on question we get is how “clean” or accurate labor market data is given the government shutdown and the catchup statisticians have had to endure. As the father of a teenage boy, I would equate the data situation as akin to the first time my wife and I request the bedroom to be picked up: cleaner than before, but still some work to do (he’s a great kid, but a teenage boy nonetheless).

Using a completely apolitical lens, this year will likely feature a number of variables that we would consider “edgeless” in the sense that certain events may be likely to occur, but the expected capital market reaction to them is unclear, irrespective of what prognostications may emerge. Early in my investment management career, a mentor shared a key construct that remains true to this day: When it comes to anticipating specific events, you have to know when the event is going to happen, the details of the event, and, most importantly, how markets will react. In other words, know where “edge” may exist and gravitate towards those phenomena and away from edgeless ones. The U.S. Supreme Court decision on U.S. tariffs is a case in point. Markets don’t know when the Supreme Court will rule, what the justices will say or to what extent they will rule on the matter (i.e., send the matter to other courts), and no one knows how markets will react once the news emerges. While we need to respect the news flow and consider implications ex post (i.e., after the fact), the list of edgeless ex ante (i.e., before the fact) variables surrounding markets is innumerate.

Again emphasizing the apolitical lens, consumer activity and attitudes are ever important, and they are critical in an election year. Shelter affordability, food costs, and transportation expenses are shared considerations across income strata, and, given inflation’s endurance, various polling services place the economy as central to prospective voters’ agendas. In the past week, President Trump proposed banning certain institutional investor groups from owning single-family homes and a day later announced $200 billion in mortgage bond purchases to drive bond prices higher and, by implication, interest rates lower. These announcements follow earlier ones on targeted relief for certain food products and other measures designed to cut consumer expenses.

We will continue to take the bond market’s cue when evaluating new policies and rulings. As we have shared in prior Weekly Five communications, we are now entering the nineteenth consecutive year of the U.S. 10-year Treasury bond — the proverbial cornerstone of global finance — remaining below a 5% yield. The bond market’s mettle may be tested on several fronts this year, and new policies offer another test: A breech through this 5% level could impact consumer borrowing trends.

In general, we are seeing consumers hold up well both domestically and outside of the U.S.. Although activity appears to be somewhat restrained, it is still positive.

In the U.S., the holiday shopping season saw record total spending, but the growth rate of that spending was lower than in recent years. A theme we see from both data analysis and qualitative comments from companies is that consumers remain promotion-driven across stores and restaurants. Restaurant activity remains strong, and some of the high-frequency data suggests that momentum continued throughout the holiday season and into early January.

From a credit standpoint, trends in credit card delinquency data are thus far encouraging and stable. That said, we did see a tick higher in Buy Now, Pay Later (BNPL) payment activity, and that credit information will be key in our assessment. Further, consumer data suggests that student loan debt remains a challenge for borrowers: While that debt level is small relative to other borrowings, it does serve as a headwind to consumer activity and potentially to credit extension within certain populations, so we will continue to monitor change there.

Global trends reflect the U.S. experience, with slower growth in Europe, an emphasis on digital sales, a value orientation and also more credit-based purchases. In Asia, the Chinese Lunar New Year (mid-February) offers another datapoint for investors, and Japanese retail sales have been bolstered by both tourism and a more vibrant consumer. 

¹ U.S. Department of Treasury TIC data as of October 2025. Accessed 9 January 2025.