January 5, 2026

Happy New Year!

“May 2026 be just as good as 2025!”

Mike Urbik

As we start a New Year the markets pulled off the trifecta (three winning years in a row), none so enjoyable since Michael Jordan played. But first here are the numbers, The S&P 500 finished the shorten week off 1.12% in very light trading, Dow Jones Industrial Average did better off .68%, Nasdaq was the big loser off 1.74%. Internationally, the FTSE 100 gained .63%, and the MSCI-EAFE added .03%. The 2-Year Treasury paid 3.477%, and the 10-Year yield was 4.195%.

Not a heck of a lot to talk about last week, except the arrest of the Venezuelan president. It was obvious with the addition of so many military assets in the region something was going to happen, the usual suspects (the socialist/communist South American leaders and the Democrats) denounced the military strike and capture of Maduro. As I happen to have family directly affected by the Chavez/Maduro administrations, their reaction: they are delighted. Expect little reaction from the financial markets (except for the oil market).  Expectations are that a friendlier Venezuelan government could boost production over time. MarketWatch has previously reported an estimate from Wood Mackenzie, a global research and consulting firm, that improvements and investments in Venezuela’s infrastructure could lift its oil output to roughly 2 million barrels a day in one or two years. With production comes lower prices. The Treasury market, meanwhile, could also benefit from lower oil prices, further reducing inflationary pressure.

So, what happened? Last Friday finished up on the day, but U.S. markets slipped into 2026 after hopes for a Santa Claus rally faded, with investors wrestling with a concentrated leadership in the AI and mega-cap trade and calls for a broader sector rotation. Analysts are flagging cash-flow generating stocks (translation: Value stocks), travel names that would benefit from a more “normal” economy, and cybersecurity firms as areas to watch as investors look beyond the Magnificent 7 and the NVIDIA-led AI theme.

On the corporate front, Tesla lost its spot as the world’s top EV seller after delivering about 1.64 million vehicles in 2025, a 9% decline, while Chinese rival BYD sold roughly 2.26 million, underscoring intensifying competition in autos. But fear not, Elon’s robots may soon invade your kitchen and laundry room.

Commodity moves were mixed: gold and silver capped very strong 2025 performances and remain a focal point for investors via metals ETFs, while crude oil and major agricultural futures eased modestly. Overall, market participants appear to be repositioning for a year where fundamentals and cash flow (again Value stocks) matter more than momentum alone.

Still, the job market remains a wildcard with hiring, which was soft across most sectors.  The minutes from the Federal Reserve’s December meeting showed two voting members of the Federal Open Market Committee dissented in favor of leaving rates unchanged, while one dissented in favor of a larger 50 basis point cut. Further, six officials released economic projections suggesting that they were opposed to a cut. “Most participants” voted in favor of a cut, while “some” of those policymakers argued that it was an appropriate forward-looking strategy that would “help stabilize the labor market” amid a recent slowdown in job creation. However, others “expressed concern that progress towards the committee’s 2% inflation objective had stalled.”

The Fed cut rates by 25 basis points for the third straight time at their December meeting, lowering the benchmark federal funds rate to a range of 3.5% to 3.75%. The decision occurred against the backdrop of a slowing labor market with inflation elevated above the Fed’s 2% target, a dynamic which puts both sides of the central bank’s dual mandate at risk.

And the job market? In November, employers added 64,000 jobs in November. The unemployment rate ticked up to 4.6% for November, the highest since September 2021. Adding more fuel to the rate cutting desired by the Trump administration.

In a harbinger of good things to come, earlier this month, the Bureau of Economic Analysis released its initial estimate of third-quarter GDP, which showed the economy grew at an annualized rate of 4.3% in the three-month period including July, August and September. That figure topped the expectations of economists polled by LSEG, who had estimated 3.3% GDP growth in the third quarter.

The U.S. dollar made a positive start to 2026 Friday after struggling against most currencies last year, while the yen inched back towards a 10-month low as traders awaited U.S. economic data to predict interest rate moves this year. A narrowing interest rate difference between the U.S. and other economies cast a shadow over markets last year, resulting in sharp gains against the dollar for most major currencies, except for the Japanese yen. Worries about the U.S. fiscal deficit, a global ‍trade war and concern about Federal Reserve independence took a toll on the greenback, and those issues are likely to linger into 2026.

Some more good news, Homebuyers can usher in 2026 with a little relief as mortgage rates fell to the lowest level of 2025 in the final report of the year. Freddie Mac’s latest Primary Mortgage Market Survey, released Wednesday, showed the average rate on the benchmark 30-year fixed mortgage decreased to 6.15% from last week’s reading of 6.18%. The average rate on a 30-year loan started the year around 7%.  “After starting the year close to 7%, the average 30-year fixed-rate mortgage moved to its lowest level in 2025 this week, an encouraging sign for potential homebuyers heading into the new year,” said Sam Khater, Freddie Mac’s chief economist. Earlier this week, the National Association of Realtors reported home sales in November rose 3.3% with gains in all regions of the U.S.; the Northeast, Midwest, South and West, a sign the market is improving.

More on what we expect going forward in our quarterly newsletter with your 2025 performance numbers to all our clients.

Thanks again for your trust and confidence.

Mike