No Rest for the Weary

We hope you had a relaxing holiday season because it has already been an eventful start to the year. On January 3, the United States launched targeted strikes against Venezuela. The operation resulted in the capture of President Nicolás Maduro and his wife, who were extradited back to the United States to face “narco-terrorism” charges. The surprise operation was an escalation of the recent American military actions against drug trafficking operations off the coast of Venezuela. Following the strike, the rest of Maduro’s administration was left in power, and the Trump administration quickly began suggesting that the U.S. and Venezuelan governments could begin to work together to resume oil exports with much of the oil coming to American refineries.

Without getting into too much detail on the science of crude oil, the type of crude coming out of Venezuela is uniquely suited to refineries situated in the American South. Oil prices experienced significant volatility as traders sorted out the effect that renewed Venezuelan oil exports would have on commodity markets. The price of U.S. crude fell to $56 per barrel on Wednesday before rebounding above $60 by the end of the week. Stocks of companies that are perceived beneficiaries of the United States exerting control over Venezuela’s oil industry rallied last week, but the magnitude of the market’s reaction was relatively muted considering the gravity of the situation. The materials and energy sectors are among the best performers so far this year, rallying 4.8% and 2.1%, respectively, last week. Increased crude supply from Venezuela wouldn’t necessarily be positive for stocks in the energy sector long-term as prices would likely fall over time. However, cyclical stocks rallied on the prospect of increased oil supply as lower energy prices tend to be positive for economic growth.

Another industry that received significant attention last week was aerospace and defense. As details emerged of the U.S. operation in Venezuela, investors were reminded that the nature of war is changing rapidly. Electronic and cyber warfare have never been more important. While Americans were on the ground in Venezuela, much of the heavy lifting was done by air as missile strikes and aircraft specializing in jamming communications lessened the need for a large ground force. At the same time, drone warfare has been a huge part of the ongoing conflicts in eastern Europe and the Middle East. Early in the week, President Trump indicated that he would take steps to limit dividends and share buybacks for defense companies until they improved operations and met existing contractual obligations. Later in the week, he proposed increasing the U.S. defense budget from $1 trillion to $1.5 trillion as a response to escalating global tensions. The likelihood of a 50% budget increase receiving congressional approval is unlikely, but Trump’s desire to ensure the United States remains the world’s strongest military force is encouraging for investors in the space. Defense sector stocks experienced significant volatility throughout the week but finished sharply higher after Trump’s budget proposal.

President Trump kept things interesting in the latter half of the week when he proposed drastic measures to address housing affordability in the United States. On Wednesday, Trump said that he would take steps to curtail institutional investors from buying single family homes. The practice of large institutional investors buying single-family homes grew in popularity following the Great Financial Crisis (GFC) when foreclosed homes were widely available at attractive valuations. Details of the plan, including what qualifies as an institutional investor, haven’t been announced. It is estimated that 1-2% of single-family homes are owned by institutional buyers, and much of that ownership is concentrated in a handful of geographies, mostly in the Sun Belt. The following day Trump announced that he will direct Fannie Mae and Freddie Mac—government-sponsored enterprises created to ensure access to affordable mortgages—to buy $200 billion in mortgage bonds with a goal of lowering borrowing costs. Data gathered by the National Association of Realtors indicates that only 24% of home purchases in 2024 were made by first-time buyers, down significantly from 50% in 2010. The primary issue when it comes to affordability is a distinct lack of housing supply relative to demand. Homebuilders have built too few homes in the years since the GFC and have remained cautious of overbuilding. At the same time, there is a “mortgage lock-in effect” in the United States as many homeowners are reluctant to move and lose the low rate they have on their current home. According to Realtor.com, over half of homeowners have mortgages with interest rates below 4%, while the current market rate on a 30-year fixed mortgage is closer to 6%. That difference can translate to a nearly $1,000 difference in monthly payments on a $500,000 mortgage. While the effectiveness of these steps remains uncertain, they are a step in the right direction in addressing a real problem facing first-time homebuyers.

The Consumer Electronics Show (CES) kicked off on Tuesday last week. The annual trade show held in Las Vegas serves as an opportunity for companies to show off their latest innovations and tease future technologies. Historically, CES has been a positive catalyst for technology and consumer stocks, and last week was a continuation of that trend—although much of the event was overshadowed by the developments in Venezuela. Artificial intelligence (AI) was a focus for many of the presentations at CES, and semiconductor memory and data storage stocks received a boost following presentations from key AI technology suppliers. The AI trade has faced increased skepticism over the last few months as investors question the sustainability of the current pace of investment, especially as economic benefits of those investments remain uncertain. However, the confidence exuded by major AI players at CES was enough to push skepticism aside for the week as AI infrastructure stocks rose.

Finally, an eventful week wouldn’t be complete without an update on the U.S. labor market. Wednesday brought ADP’s private payrolls report, which showed that 41,000 nongovernment jobs were added in December, just shy of expectations but reflecting stable growth. The Job Openings and Labor Turnover Survey, or “JOLTS,” was also released on Wednesday and painted a similar picture with fewer job openings than expected, but fewer layoffs as well. Friday’s U.S. employment report reflected a more subdued situation. The U.S. economy added just 50,000 jobs in December, below expectations for 73,000 jobs to be added. Employers added just 584,000 jobs in 2025, down significantly from more than 2 million additions in 2024. The current labor situation in the United States is being characterized as stable with employers hesitant to fire workers but also hesitant to hire. The reluctance is likely reflective of trade uncertainty, immigration policy, government budget cuts and general economic angst expressed by workers. Investors took bad news as good news on Friday—a cooling labor market could be a sign that the Federal Reserve is likely to cut interest rates more than anticipated in 2026.

Looking forward to this week, we will get a few updates on inflation while the fourth-quarter 2025 earnings season will kick off with large banks reporting results. The Supreme Court is expected to rule on the legality of the Trump administration’s tariffs in the coming days. If the tariffs are struck down, we expect a strong initial reaction from investors before returning to business as usual while Trump’s trade team explores other avenues to implement its policy goals.

Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market