It's only January 13, but the year has already been jam-packed with lots of head-spinning events. President Donald Trump's administration captured Venezuelan President Nicolás Maduro in a US military operation on January 3, 2026, taking him from his home in Caracas and transporting him to New York to face drug trafficking charges. Trump said he will "run" Venezuela. Trump is threatening "strong" military action against Iran should more demonstrators be killed in nationwide protests against the regime of the Mullahs. The crude oil market rallied on the upheaval in Iran (chart).
Here at home, Trump is threatening to defund sanctuary cities and states that are not cooperating with federal efforts to deport illegal immigrants. The Trump administration's Justice Department is launching a legal probe into Fed Chair Jerome Powell's congressional testimony regarding the renovation cost of the Fed's headquarters. Three former Fed chairs joined a statement supporting Powell, denouncing the investigation as an "unprecedented attempt" to undermine the Fed's independence.
All of the above sent gold and other precious metals prices to new record highs in recent days (chart).
The dollar, however, has held its ground (chart). During times of turmoil, the US dollar is still viewed as a safe-haven currency. In addition, the economic data suggest that the data-dependent Fed should be in no rush to lower the federal funds rate now that it has been cut by 175 bps since September 2024.
The next major event that could trigger volatility in the financial markets is the Supreme Court's decision on whether Trump's tariffs are legal. Odds are that SCOTUS will decide that they are not. We estimate that this might force the US Treasury to refund about $150 billion in customs duties (chart).
On a ytd basis, the bull market in the S&P 500 is broadening, as we expected it might this year. The S&P 400 and S&P 600 are outperforming the S&P 500 (chart). We have been recommending overweighting selected sectors in the SmallCap and MidCap indexes, including Financials, Industrials, and Health Care. So far this year, the gains in SMidCap Industrials have been impressive.
The Impressive-493 has outperformed the Magnificent-7 since last November. We expect this will continue in 2026, as last year's LargeCap laggards catch up.
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