Energy jumped as U.S. economy slumped
Why are oil prices going up?
Geopolitics impacted commodity prices again, in a serious way. Brent crude oil pushed up to six-month highs close to $71 per barrel — and West Texas Intermediate traded around $66 — after President Trump warned Iran that “really bad things” would happen if no nuclear deal is reached within 10 to 15 days. The backdrop included a U.S. military buildup in the region, Iranian military drills near the Strait of Hormuz and joint exercises with Russia. Despite the rhetoric, strategists at Barclays described the effects of any potential strike as likely short lived, noting the administration’s sensitivity to gasoline prices ahead of mid-term elections. Morgan Stanley also pointed out the oil market is fundamentally well supplied, with additional support coming from Chinese stockpiling and elevated freight rates. For now, the price of crude oil is reflecting the potential risk, rather than the likeliest outcome.
Why did Walmart’s shares drop?
On the U.S. consumer front, Walmart delivered a classic beat and guide lower setup (where the company announced better-than-expected quarterly earnings but warned that the immediate future would not be so positive). Earnings per share for the fourth quarter of 2025 came in at $0.74 versus the expected $0.73; revenue reached $190.7 billion versus the expected $190.4 billion; annual revenue crossed $700 billion for the first time; and management authorized a $30 billion buyback. However, its stock still closed lower, by roughly 0.6%, after the company’s forward-looking expectations were well below what the market had hoped for. The more interesting signal came from what was shared at the earnings call. Walmart’s management described a K-shaped consumer, with market share gains concentrated among households earning over $100,000, while lower-income cohorts show reduced purchasing power. It suggests resilience at the top and strain at the bottom, something we’ve been talking about for years here and elsewhere in our communications.
Why did the U.S. trade deficit widen?
Trade data reinforced that sense of caution. For the second consecutive month, U.S. exports declined and imports rose. Imports increased by 3.6% month over month versus expectations of only 0.1%, while exports fell by 1.7% versus expectations for a gain. The result was a significantly wider trade deficit and a second monthly deterioration. Industrial supplies saw the largest shift, while gold imports fell back toward their lowest levels since 2019. At the same time, real gross domestic product (GDP) slowed sharply to a 1.4% annualized pace in the fourth quarter of 2025, compared to 4.4% in the previous quarter, bringing full-year growth to 2.2%. Consumer spending and trade dragged on growth, and the federal government shutdown weighed on activity for much of the quarter. It appears that the trade policies of the Trump administration are not having the desired effects but instead are delivering the results that were expected by economists.
How will the market react?
Looking ahead, how will the market react to this economic slowdown? Will bad news be treated as good news, or is bad news starting to be just bad news again? It remains to be seen. So far, at least, the latest GDP statistic hasn’t prompted the market to overreact.
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
