For those of you who would prefer to listen:
What a week. It was quite eventful. That’s not new for the 2020s. It’s become the norm. But it was Market-moving. There’s plenty of innovation around. Robots took the stage. Controversy is always around. Geopolitical activity is grabbing headlines, all the while economic activity continues. Q4 Earnings Season has begun. All this and much more in another rapid rundown:
The DOJ and the Fed
The week started out with news that the Department of Justice (DOJ) subpoenaed the Fed Chairman. This is highly unusual. But of course, these are indeed unusual times. The Fed Chair went to social media Sunday night with a video recording announcing he received grand jury subpoenas from the Department of Justice and that he’s under criminal investigation for allegedly lying to Congress about the scope of the renovation of the Fed’s headquarters in Washington, D.C. The Market took things in stride, quickly shaking off the prospects of criminality at the hands of the Fed. The immediate pushback from the Fed Chair combined with a strong, united front from former Fed Chairs, Congressional members and Wall Street seemed to put down the threat. Even allies of the President distanced themselves from the investigation. That said, Fed independence keeps getting tested. The Market does not like that.
Geopolitics
Global tensions keep tightening. Just days after Maduro was captured in Venezuela, a revolution, or perhaps a counter-revolution, more accurately, developed in Iran as the people are fighting back against the tyrannical regime that took power five decades ago. The implications are massive from a political, social and humanitarian perspective. But economically, the impact is less. Neither of these nations are economic powers. The major barometer of course is the price of Oil. Both Venezuela and Iran harbor large supplies. When you add in Russia, from a Global Energy perspective, the impact is massive.
These geopolitical developments in Iran, Venezuela, and the Black Sea sent Oil prices to 3-month highs. That said, there continues to be plenty of supply available. Of course, those supplies are always at risk with such events. The supply glut took WTI down to $55 per barrel last year. That was a decline of 20%. The recent strength in the price of Oil could be sustainable. Above $60, it was pressing up against a pretty defined downtrend line from its peak above $100 after Russia invaded Ukraine. It wouldn’t take much to get it moving back towards $70.
With so much uncertainty amongst geopolitical risks, we could see Crude prices going higher still. Demand remains strong. Global consumption is expected to be roughly 105 Million barrels per day. However, global daily production is closer to 107 Million. Those supplies could be impacted. It’s easy to see how production could be impacted in this environment. Importantly, much of Venezuelan, Russian and Iranian crude goes to China. You can see the complexity and significance.
Here’s the deal: Lower energy prices have been deflationary. That has been a significant driver in economic activity and lower rates. It’s no surprise that the White House has been pushing for lower Oil prices ahead of the midterm elections. Ultimately, positive resolutions in Venezuela, Ukraine and Iran could lead to lower energy prices. But getting there could be long and bumpy. It almost certainly will. What’s more, the 10-Year Treasury Yield went into the weekend above 4.2%. That’s the highest closing rate since early September. The price of money has gotten more expensive. That signals inflationary. This will probably be a second half of 2026 story and beyond. Investing is about anticipation. We skate to where the puck is going. It’s important to remember, the World still runs on Crude.
Earnings Season
It’s that time again. Corporate America is turning in report cards for the December quarter. The Street is looking for another strong showing with S&P 500 earnings growth of 8.3% in Q4. That is an uptick from the +7.2% expected at the end of September. That said, the growth rate is decelerating compared to the +13.5% in Q3. Revenues are expected to grow 7.7%, just a bit below the 8.4% growth reported for Q3. No surprise, Tech is expected to deliver the best earnings growth, up 25.9%, with Nvidia the largest contributor. Interestingly, Materials is the only other sector that is expected to outperform the combined S&P growth rate. All other 9 sectors are estimated to grow less than the 8.3% rate. Industrials, Energy and Consumer Discretionary are the sectors expected to see an earnings contraction.
The Big Banks always lead things off. They had solid reports, but expectations were pretty high. The read through is the U.S. Economy remains in solid shape. Americans keep spending. Transactions are happening. And the Market is at all-time highs. That said, Financials were the worst-performing sector this week. Sell the news was the theme.
An important takeaway from JP Morgan CEO Jamie Dimon: “The U.S. Economy has remained resilient. While labor Markets have softened, conditions do not appear to be worsening. Meanwhile, consumers continue to spend, and businesses generally remain healthy. These conditions could persist for some time, particularly with ongoing fiscal stimulus, the benefits of deregulation and the Fed’s recent monetary policy. However, as usual, we remain vigilant, and Markets seem to underappreciate the potential hazards, including those from complex geopolitical conditions, the risk of sticky inflation and elevated asset prices.”
Another tidbit taken from Bank earnings was the number of job cuts on Wall Street. The Big Banks said they have a combined 10,000+ fewer workers than they did a year ago. Automation and AI are definitely impacting employment in finance. It’s been an issue in many industries. Realistically, it’s only the beginning.
Tech Took off Again
The AI-trade was back on this week. Taiwan Semi, the largest manufacturer of advanced chips, reported earnings. The company knocked it out of the park. AI continues to drive massive growth. The company said that customer demand remains strong across all segments. Importantly, its CEO validated that AI demand is not just coming from the Tech Titans. It has broadened throughout the chain. Taiwan Semi said AI-related revenue is expected to grow at a 50% CAGR through 2029. That’s 50% compounded annual growth for the next 4 years. It’s another indicator that this AI revolution remains in its infancy. That put a charge back into Tech stocks, which had been sluggish of late. We will certainly learn more in a couple weeks when the Tech Titans come to bat.
Consumer Corner
Americans keep spending. The NovemberRetail Sales report, released this week, saw an increase of 0.6% month-over-month. That beat the 0.4% estimate marking a 3.3% increase compared to last year. This was better than October’s downwardly revised 0.1% decline (initially printed flat). The November data suggests a strong start to the Holiday shopping season which would be reflected in the December report. Consumer spending accounts for nearly 70% of America’s GDP. Higher prices haven’t stopped people from opening their wallets. They’re just a little more selective in what they’re buying.
The Airlines always provide a barometer for the health of the American Consumer. Delta was the first to report. The company recorded another solid quarter. What it experienced seems very representative of the US Economy today. “We are looking at our seat growth in the coming year. Main cabin ticket revenue fell 7% in Q4 compared to a year ago. However, premium ticket revenue, those seats at the front of the plane, rose 9%.” For the first time in the company’s history, revenues from premium seats eclipsed coach. This trend is expected to continue in 2026. The company hinted at another record year, with 20% earnings growth likely, as travel demand remains robust. It’s the high-end that’s the driver. From CEO Ed Bastian: “Effectively, none of our growth in seats will be in the main cabin; virtually all will be in the premium sector.” That’s America’s “K-shaped” Economy in motion.
You know what area is not seeing robust activity? Rocky Mountain Ski resorts. Vail Resorts reported that traffic fell 20% at its properties across the country in Q4. A lack of snow seems to be the culprit, not demand. Just 11% of the company’s Rocky Mountain terrain was open for use in December. It was the worst Winter opening in the region in three decades. Businesses tied to the seasonal activity are really feeling the declines. The East Coast properties saw healthy activity with plenty of snow, but they aren’t large enough to offset the weakness from the powerhouse properties in Breckenridge, Beaver Creek, Crested Butte and Vail. Tahoe is faring much better after a slow start.
Innovation Hits Vegas
The annual Consumer Electronics Show was in Vegas again this week. No surprise, AI was everywhere. Robots cruised throughout the convention center. They were active, from playing ping pong to pouring drinks. Robots have become increasingly useful. Present were industrial robots that can lift 100-pound items in temperatures ranging from degrees Fahrenheit of -4 to 104. That robot’s name is Atlas. These are super-human, learning machines from Boston Dynamics. It partners with Google’s DeepMind business line. It’s all very investable.
On display was a robotic vacuum that climbs stairs. The flat device sprouts legs with wheels which pulls the unit up step by step. What’s more, it can actually clean as it ascends. There were also robotic pets. For those that want a canine or feline companion without the fur, the food and the accompanying odorous fumes. Robots are no longer near; They’re here.
LG, the South Korean electronics manufacturer debuted something sleek at CES this year. It’s an OLED (Organic Light-Emitting Diode) Television that’s only 9 millimeters thick. That’s roughly 1/3 of an inch; The width of a pencil. They call it a “Wallpaper TV”. The screen displays video nearly edge-to-edge, spanning 83 inches diagonally with no wires and is ridiculously thin. It can connect to pretty much every device imaginable. It’s said to be a work of art in any room with complete functionality of a digital screen.
One innovative start-up is exploring how immersive technology might make talking with a friend or loved one who has passed away or having a conversation with your younger self possible. VHEX (Virtual Human Experience) Lab showcased an immersive extended-reality grief therapy platform that creates a virtual avatar from a photo. According to the company, the experience is guided in real time by a trained XR therapist. So basically, you upload a picture of a loved one to the system. Wearing a virtual reality headset, you are able to speak with the avatar of the loved one, which responds through speech, nods, smiles and other gestures.
VHEX Lab won a digital health innovation award at CES this year. The South Korean company was founded in 2023 with the goal of treating emotional and mental health in novel ways. Its platform is designed to help people process grief and find closure, offering an alternative way to mourn. This one just blows me away. It struck hard as I write on what would be my sister’s 56th birthday, having died 28 years ago. It’s just incredible what innovations bring. Wow. Just wow.
Back to the Present:
Despite all the chaos and confusion, the Stock Market remains near all-time highs. Earnings Season will provide that needed look into the health of Corporate America and what lies ahead. Expectations are pretty high. Innovation continues to lead the charge. But the future is never certain. Neither is reality, these days. 2026 is littered with both risks and opportunities. Planet Earth is such a complex place. And it’s all very investable for those able to see beyond the now.
Have a nice weekend. The Market will be closed Monday, in honor of Dr. King’s birthday. Our office will be closed too, back open dark and early on Tuesday.
Mike
