Markets entered the week under the weight of growing geopolitical tensions as three separate flashpoints—Venezuela, Iran, and Greenland—merged into a broader story about energy security, strategic control, and U.S. geopolitical positioning. After a U.S. operation led to the capture of Venezuelan President Nicolás Maduro, ripple effects began to move through global markets, while protests and U.S. rhetoric elsewhere added fuel to an already volatile landscape.
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With desks fully reopened after the holiday slowdown, investors are now recalibrating their view of geopolitical risk, particularly around oil supply chains, maritime trade routes, and access to critical materials. The week's movements suggest that global power dynamics are entering a new phase—and markets are adjusting accordingly.

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A Risk-On Rotation Led by Cyclical Sectors

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Despite the geopolitical uncertainty, equity markets rallied with a notable risk-on tone. Investor appetite returned for sectors tied to economic growth and resource demand:
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• Consumer Discretionary (XLY) surged +5.12%, suggesting optimism around consumer resilience.
• Materials (XLB) jumped +4.64%, reflecting renewed confidence in industrial demand and commodity exposure.
• Industrials (XLI) climbed +2.50%, further supporting the view that capital spending and infrastructure plays remain in favor.
• Energy (XLE) gained +2.23%, underpinned by the renewed strategic value of secure oil and gas supply amid global tension.
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Even as headline risks remained elevated, investors appeared willing to re-enter names tied to real assets and cyclical growth—likely betting that a reconfiguration of global energy flows would favor U.S.-linked supply chains and domestic producers.

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Defensive Sectors Lag Despite Uncertainty

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Interestingly, defensive sectors like Utilities (XLU) underperformed, down -1.55%, as rising yields and less aggressive Fed expectations took the edge off safe-haven positioning. Other traditionally defensive sectors participated only modestly in the rally, suggesting that the current rotation is more about opportunity than fear.
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This divergence reinforces the idea that markets are not shunning risk altogether—but are instead becoming more selective, favoring sectors and companies that stand to benefit from longer-term structural shifts, including reshoring, energy independence, and AI-linked capital spending.

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Macro and Earnings Calendar Takes Center Stage

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Looking ahead, attention shifts to a dense slate of economic data and corporate earnings that could reset expectations for growth and interest rates as 2026 begins in full force. Key indicators to watch:
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• Inflation metrics that will influence near-term Fed policy signals.
• Retail sales and housing data to gauge consumer strength and real estate trends.
• Producer prices and labor market stats that may offer insight into broader cost pressures.
• Earnings season kickoff, led by major banks, which could reveal early signs of credit tightening, lending standards, and macro sensitivity.
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Bottom Line

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Markets are responding not just to geopolitical headlines but to what they imply about power, control, and long-term supply security. As energy security and infrastructure reassert themselves as critical themes, investors are leaning into sectors positioned to benefit from volatility and real-world constraints—while watching the Fed and economic data closely for confirmation.