Oil and energy volatility
- Oil prices reversed Monday rally on Tuesday
- Energy market risk still skewed to downside?
- Preparing for January “earnings surprises”
A week that had looked like it would be mostly about potential tech-sector momentum and the latest monthly jobs report took a turn toward geopolitics—and the energy market—with news of the US actions in Venezuela over the weekend.
As might be expected after any “surprise” that potentially increases uncertainty about the global crude oil supply, US futures responded with a 1.8% gain on Monday—a strong, but hardly exceptional rally. By midday on Tuesday, the market had fallen more than 2%, leaving prices toward the bottom of their choppy, short-term consolidation:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The story was much the same for most oil stocks. The S&P 500 energy sector, which led the market to the upside on Monday, also led it to the downside on Tuesday.
Despite Monday’s rally, Morgan Stanley & Co. analysts believed the near-term impact on oil prices was likely limited, while noting the medium-term risk for the market “skews bearish.” Venezuela has one of the world’s largest oil reserves, but it is also the smallest producer of the top-10 reserve holders—the result of years of inefficiency, under-investment, and sanctions.1
In other words, despite ongoing uncertainties and the potential for volatility, recent events may represent less of a near-term catalyst for oil and energy stocks—bullish or bearish—than some traders initially thought.
In fact, Morgan Stanley & Co. analysts note that recent events highlight the potential attractiveness of defense contractors like Northrop Grumman (NOC), and “US Defense Primes” such as RTX (RTX), L3Harris (LHX), and General Dynamics (GD)—a group they say is trading at a roughly 30% discount to the S&P 500.2
Market Mover Update: Many traders were probably aware of Western Digital (WDC) on Tuesday because the hard drive maker rallied more than 17% intraday to a fresh all-time high:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
That was one of the 10 biggest rallies among individual stocks trading above $10 on Tuesday. But the computer hardware company, which has gained more than 430% since the end of March 2025, was also noted in a new report from Morgan Stanley & Co. that identifies stocks with the greatest potential for earnings surprises this month. WDC, which is scheduled to report its numbers on January 27, was at the top of the list of US stocks with the strongest “Earnings Surprise Composite” scores that are also rated Overweight by Morgan Stanley & Co. equity analysts.3
Today’s numbers include (all times ET): mortgage applications (7 a.m.), ADP Employment Report (8:15 a.m.), Factory Orders (10:00 a.m.), ISM Services Index (10:00 a.m.),EIA Petroleum Status Report (10:30 a.m.).
Today’s earnings include: Cal-Maine Foods (CALM), Pricesmart (PSMT), Richardson Electronics (RELL), Constellation Brands (STZ), Unifirst (UNF).
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1 MorganStanley.com. Key Impacts of Events in Venezuela. 1/5/26.
2 MorganStanley.com. The Case for US Defense Primes Post Operations in Venezuela & Iran. 1/5/26.
3 MorganStanley.com. Quant Driven Earnings Ideas—Stocks Poised for Earnings Surprises in January 2026. 1/6/26.