US Strategy Weekly: Bits and Pieces

Venezuela

Sometimes presidential actions have no economic significance, but often they do. There were many political stories to discuss this week, but the main one is that of Venezuelan President Nicolas Maduro and his wife Cilia Flores who were seized from their Caracas compound on Saturday and swiftly flown to the US as part of a special forces operation to face charges in a US federal court. Not surprisingly, politicians are looking for ways to divide public opinion and are campaigning on this action. Democrats are calling it an act of war and a US-driven regime change, while Republicans are calling it an enforcement of outstanding warrants for illegal drug, weapons, and narcoterrorism charges. There has not been a regime change in Venezuela. Delcy Rodríguez, Maduro’s vice president, is currently the acting president. Most of Nicolas Maduro’s ministers are still in their posts, and the powerful military remains loyal to her. It is also worth noting that left-of-center Wikipedia describes Maduro’s reign as “characterized by electoral fraud, human rights abuses, corruption, censorship and severe economic hardship. The United Nations (UN) and Human Rights Watch have alleged that under Maduro’s administration thousands of people died in extrajudicial killings and seven million Venezuelans were forced to flee the country due to economic collapse resulting from crippling US sanctions.”

But the seizure of Maduro could have economic as well as political repercussions. Experts are theorizing about Venezuela and Venezuela’s oil, but no one can be certain of what the future will bring. Still, oil and oil equipment stocks responded to the news as seen by year-to-date gains of 2.1% in the Energy Select Sector SPDR (XLE – $45.64) and 8.7% in the iShares DJ US Oil Equipment & Services ETF (IEZ – $22.69). See page 10. The ideal result of Maduro’s capture and imprisonment would be for current leadership in Venezuela to allow for a new election, the US helps rebuild Venezuela’s crippled resource sector, and all Venezuelans reap the benefits of a re-energized Venezuela and its wealth of oil and mineral reserves. This is aspirational but an extremely big leap. At present, one can assume that there should be more infrastructure spending in Venezuela and more oil coming to market in the future. More oil means lower oil prices, which also means lower inflation. This would be a plus for all consumers and investors and it should be good for US oil services and integrated oil companies.

Santa Claus Rally

2025 was a good year for equity investors but many are worried about 2026 for a variety of reasons. Equities did not follow seasonal patterns in the last year, yet some are still worried that there was no Santa Claus rally. The Santa Claus rally is determined by the last five trading days of the old year and first two trading days of the new year. In the S&P 500 index, this 7-day period ended with a loss of 0.11% and it was a cause for concern. The Nasdaq Composite index also lost 0.7%. However, the Russell 2000 index gained 0.3% and the Dow Jones Industrial Average gained 1.1%. In other words, not only was there a Santa Claus rally this year, but it was a demonstration of sector rotation with gains in small cap and non-technology issues. Sector rotation is a sign of a healthy bull market. So, we would ignore the naysayers and believe in Santa Claus.

Equity Ownership

Federal Reserve data regarding total household and nonprofit assets in June of 2025 showed equity ownership at a record 31%. This exceeds the prior June 2021 peak level of 30% and the March 2000 peak of 27%. Economists are worried. And when just measuring financial assets, equities represented a record 31% of household assets, far more than the 27.4% seen in June 2021 and 24.5% in March 2000. Nevertheless, the charts on page 3 explain why equity ownership has been rising. As corporations shifted pensions from defined benefit plans to defined contribution programs, household assets in pension fund reserves declined nearly 10% from a peak of 34.4% in March 2003 down to 24.8% in June 2025. Fed data includes equities owned directly or indirectly (through defined contribution or insurance plans) and therefore equity ownership levels have increased. Assets in noncorporate, or proprietors’ equity have also declined, and as a result, historical comparisons regarding household equity ownership are difficult. If one only looks at household assets in cash, bonds, and equities, the equity percentage in June was 70.5%, just below the 70.7% recorded at the end of 2021 and just above the 69.6% recorded in March 2000. Real estate ownership has also been declining, and young adults have been shut out of the real estate market due to unaffordable prices and high interest rates. As a result, we are seeing more young people investing in equities and Bitcoin. In sum, the level of household equity ownership for this generation is different and not easy to compare historically. In short, we are not worried about current equity ownership levels.

Economies by State

We were intrigued by a recent article on interstate migration. U-Haul Holding Company (UHAL – $53.37), the do-it-yourself moving and storage operator for household and commercial goods reviewed more than 2.5 million one-way transactions across the US and Canada for its 2025 Growth Index. The results showed that Texas tops the ranks of in-migration states, followed by Florida, North Carolina, Tennessee, and South Carolina. The states with the most people leaving are California, Illinois, New Jersey, New York, and Massachusetts. Blue-to-red state migration has become a hotly debated topic particularly now that states are redistricting and population has consequences in the House of Representatives. According to U-Haul, “the migration became more pronounced after the pandemic of 2020, continues to be a discernable trend, and seven of the top ten growth states currently feature Republican governors, and nine of those states went red in the last presidential election.” As a past New Yorker, who now enjoys Florida, the migration is understandable in so many ways.

The December ISM manufacturing index fell from 48.2 to 47.9, its tenth consecutive reading below 50. However, five of the ten components of the index rose for the month, and one — prices paid — was unchanged. Production fell slightly to 51.0, imports fell 4.3 to 44.6, inventories fell 3.7 to 45.2, and customers’ inventories fell to 43.3. But employment, new orders, suppliers’ deliveries, order backlog, and exports all rose. Overall, the survey was better than the headline, but manufacturing remains sluggish. See page 4.

Our recent outlook for 2026 indicated that our S&P 500 earnings estimate of $315 coupled with an unchanged trailing PE of 26 translates into a price target for the S&P of 8190. We continue to emphasize that this has been an earnings-driven rally. The LSEG IBES consensus earnings estimate for 2026 rose $1.51 to $313.88 this week. The 2027 forecast rose $1.46 to $359.43. The S&P Dow Jones 2026 earnings estimate rose $1.88 to $310.85. Both surveys are moving toward our estimate of $315, which may prove to be conservative. See page 5. At present, the forward earnings yield of 4.6% and dividend yield of 1.2% compare well to a 10-year Treasury bond yield of 4.2%. Plus, the 12-month sum of operating earnings shows a gain of 14.2% YOY, far better than the 75-year average of 8.1% YOY. And technical indicators remain positive. Most importantly, the NYSE cumulative advance/decline line made a new high on January 6, 2026, confirming the new highs in the indices. This implies the market advance is broad based and healthy. See pages 6-8.

Gail Dudack

Click to Download