Venezuela holds 20% of the world’s proven oil reserves. Not only are they the largest, but as shown in the Statista graphic below, they hold approximately seven times that of the United States. Despite its large reserves, Venezuela has fallen well short of its ability to supply the world. US sanctions and the significant deterioration of energy infrastructure have reduced Venezuela’s oil output to approximately 700k barrels per day, about a quarter of its estimated 3 million barrels per day potential.

There are still many unknowns about how this new US-led regime change will work out in Venezuela. The early indications from the financial markets are somewhat telling. Crude oil prices are relatively flat versus Friday’s close. It’s essential to recognize that the new supply from Venezuela will not affect the oil market in the near term. Accordingly, the near-term impact on the economy, inflation, and most stocks is negligible. That said, energy stocks are benefiting from the potential to expand operations in Venezuela.

The large global integrated oil companies, such as Chevron, ConocoPhillips, and Exxon, appear to be the immediate winners, assuming the US lifts many of its sanctions and capital flows into Venezuelan projects. Chevron may be the principal beneficiary, as it already has licenses and operations in Venezuela. As capital begins to flow toward Venezuela’s infrastructure, service companies should benefit. Companies that provide drilling, completions, and maintenance services, such as Schlumberger and Halliburton, could experience increased demand if Venezuela’s aging infrastructure is modernized. Refiners that currently process Gulf Coast heavy crude oil, such as Valero and Marathon, would benefit from increased shipments of this crude for blending into their current production.
 

What To Watch Today

Earnings

• No earnings releases today.

Economy
 

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Market Trading Update

Yesterday, we discussed the technical backdrop of the market. As we kick off the first full trading week of the year, we are also setting up for the start of the Q4 earnings season. As shown, reported EPS estimates for Q4 never recovered following “Liberation Day” and are currently $10 below where we started the year. This will set the bar at a relatively easy level for companies to achieve a high “beat” rate once again.
 

Currently, Wall Street estimates through 2026 have the S&P 500 expected to deliver $285 in EPS, which is well above the long-term historical growth rate of earnings. The last time earnings were significantly deviated above the long-term trend was heading into 2021, before the market correction the following year.
 

While ebullient forecasts for earnings are part of the Wall Street game, it is also worth considering the risk of disappointment when those outsized forecasts coincide with elevated valuations. As we have previously discussed, the most significant risk in 2026 is that earnings fall short of estimates, leading the market to reprice valuations. Over the last three years, the bulk of the market return has come from rising multiple valuations, as the “E” did not keep pace with the rise in the “P.” If something occurs that causes the “E” to be revised lower, to maintain the current multiples, the “P” will also have to decline.

What would cause such a revaluation in the market? No one knows, but given that estimates are well above anything we have seen previously, it certainly seems that Wall Street may be overly optimistic about how this year turns out.
 

Fair Value Prevails

As we share below, many stock factors have relative and absolute scores that are slightly overbought but near fair value. Market breadth is generally starting 2026 in a healthy position. Moreover, with the S&P 500 above its key moving averages and within 100 points of a record high, the new year kicks off on a bullish note.

Developed and emerging markets start the year as the most overbought factors. Not surprisingly, gold miners, given the performance of precious metals, are also overbought but not as extreme as they were a few weeks ago. The market is favoring high-beta stocks, while low-beta, mega-cap growth, and the ARKK disruptive-technology factors are lagging. The effects of year-end 2025 trading and associated early 2026 activity will continue to affect the market for a few more days. Still, the more rapid rotations among factors and sectors should ease, and the market’s tone should become clearer.
 

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Precious Metals Aren’t Predicting Economic Collapse

Pricing for all commodities, and particularly precious metals, is ultimately determined in the futures markets. These markets primarily function through the COMEX and CME. In the long term, physical demand indeed affects prices. However, in the short term, prices are set by futures contracts where buyers and sellers speculate, hedge, or arbitrage for profit. Given that the vast majority of these contracts are cash-settled, meaning they don’t result in physical delivery, the price is set more by the volume and positioning of financial participants than by immediate physical demand or scarcity. This structure allows large institutions, hedge funds, and algorithmic traders to influence price direction through leverage, often independent of underlying physical flows. As a result, even substantial physical shortages or premiums in retail markets may not reflect directly in futures-based spot prices unless accompanied by shifts in futures market positioning. READ MORE…
 

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