Why Markets Remain Resilient Despite Political Noise

Following last week’s note on Venezuela and its potential implications for Wall Street, I wanted to offer some broader market context and a brief update on why Venezuela remains a far more complex investment story than recent headlines might suggest. As we move through 2026, our outlook remains cautiously optimistic, supported by strong fundamentals, but tempered by rising political and policy risks.

A defining theme this year has been the growing alignment between fiscal and monetary policy alongside a clear shift in Washington’s priorities. Markets are responding. More than 90% of the Dow Jones Industrial Average is now trading above its 200-day moving average – a level of breadth not seen since 2021. This reflects increasing investor confidence that policymakers are willing to run the economy hot while still attempting to contain inflation.

That framework helps explain why softer labour data have not unsettled markets. December payroll growth was modest, yet the unemployment rate edged lower. In this cycle, labour supply, not demand, is the binding constraint. More restrictive immigration policy means fewer new jobs are required to keep labour markets tight, while economic growth is being driven less by headcount expansion and more by capital investment and productivity gains. AI-related capital spending alone is expected to exceed $500 billion next year, and productivity growth recently posted its strongest reading in two years. Importantly, the traditional macro risks, a sharp rise in unemployment, a disruption to AI investment, or a renewed inflation surge, remain absent for now.

Fiscal policy is also firmly expansionary. New legislation, deregulation efforts, and renewed defence spending signal that the administration is no longer attempting to fine-tune a soft landing. Instead, growth and affordability have taken centre stage ahead of the midterms. With GDP tracking well above trend, this backdrop continues to support broader equity participation, though valuations leave less margin for error.

Against this strong domestic picture, Venezuela remains a stark contrast. Despite renewed efforts by the administration to involve U.S. oil companies following the capture of President Nicolás Maduro, major producers remain deeply hesitant. Venezuela’s oil is predominantly extra-heavy crude with breakeven costs north of $80 per barrel, making it unattractive at current prices and technically challenging compared to alternatives like Canada. As Exxon’s CEO noted last week, after having assets seized twice, re-entry would require “significant changes.” Political risk, capital intensity, and history all argue for caution.

Finally, markets are closely watching the administration’s criminal investigation of Fed Chair Jerome Powell. While unsettling from an institutional standpoint, the episode may ultimately reinforce the Fed’s resolve to demonstrate independence, making near-term rate cuts even less likely.

The key takeaway for investors is balance: strong growth and improving market breadth support risk assets, but discipline and selectivity remain essential as political risks rise. We remain cautiously optimistic and focused on navigating both opportunity and uncertainty.