Shaky end to 2025
Summary
U.S. markets weakened late in 2025 and had an uneven start to 2026 as investors weighed tech valuations. In 2025, the Nasdaq returned 21.1%, the S&P 500 gained 17.9%, and the Dow rose 14.9%. On the first trading day of 2026, the Dow rose 0.7%, the S&P 500 gained 0.2%, and the Nasdaq slipped.
Trump to run Venezuela temporarily
On January 3, U.S. forces captured Venezuelan leader Nicolás Maduro and his wife, Cilia Flores, in a dramatic military operation. Maduro was transported to New York to face federal narco-terrorism and drug-trafficking charges. President Trump announced that the U.S. would temporarily "run" Venezuela to ensure a transition and restore its oil industry.
The immediate market reaction has been muted. Although the attack was unexpected, markets had already priced in the risk of conflict-related disruptions to Venezuelan oil exports. Some weekend reports suggest modest, temporary "risk premium" in oil prices, followed by a reversal as conditions stabilize.
Probability of January Fed cut declines
In December, the Federal Reserve lowered its policy rate by a quarter point to a range of 3.50% to 3.75%, marking its third cut of the year. Meeting minutes, however, highlighted a deeply divided committee. Three policymakers dissented, the most since 2019, and several officials who supported the cut indicated they had seriously considered a pause.
This caution reflects a finely balanced economic outlook. The Fed’s dot plot shows wide dispersion for 2026, with seven officials expecting no further cuts and the median projection pointing to just one additional quarter-point reduction.
Looking ahead, the committee has set a higher bar for additional easing, emphasizing that both the timing and extent of future adjustments depend on inflation continuing to decline as expected. Markets have largely absorbed this message. The CME FedWatch Tool assigns an 85% probability that rates remain unchanged at the January meeting. Investor attention is now turning to the upcoming rotation of FOMC voting members and President Trump’s expected announcement of a new Fed Chair in early 2026.
The week ahead
The coming week features a heavy slate of economic data and the start of fourth-quarter earnings season. Today, investors will focus on the December ISM Manufacturing PMI. Wednesday brings the December ADP employment report, ISM Services PMI, November JOLTS data, and the first wave of Q4 earnings. On Thursday, January 8, markets will receive the Challenger Job Cuts report and earnings from RPM International. The week concludes Friday with December nonfarm payrolls and unemployment data, October housing starts and building permits, and the preliminary January University of Michigan consumer sentiment reading.
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