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Oil and Geopolitics Take the Driver's Seat
Ahead of the latest Federal Open Market Committee (FOMC) decision, the dominant force in equity markets is not monetary policy — it is oil. Geopolitical tensions, now in their 19th day of conflict involving Iran, are injecting significant volatility into energy markets and, by extension, into broader risk assets.
WTI crude initially moved to the downside on news that production levels would be restarted and improved by approximately 250,000 barrels per day. However, that relief was short-lived. Reports emerged that the South Pars gas field facility in Iran — a resource shared with Qatar — had been struck, raising concerns about disruptions to both natural gas production and liquefied natural gas (LNG) supplies. This back-and-forth in energy markets is likely to remain the primary driver for equities in the near term.
A particularly notable dynamic is the growing disconnect between oil futures prices and physical crude prices. Middle Eastern physical crude — Omani crude, for instance — is trading around $153 per barrel, roughly $20 to $30 above where futures markets sit. While such disconnects do occur, it would be surprising to see this divergence sustain itself for more than a few weeks. Either physical prices must come down (unlikely given supply disruptions) or futures prices must rise.
The Fed's Tightrope Walk
The FOMC decision itself carries no expectation of a rate cut. Instead, the market's attention is fixed on the updated Summary of Economic Projections (SEP). If the projections remain broadly in line with the previous print, markets should digest them smoothly. However, any significant downward revision to economic growth forecasts could spark volatility.
The Fed finds itself in a familiar but uncomfortable position. The last major supply-side shock — driven by the Russia-Ukraine conflict — saw the central bank respond with aggressive rate hikes. That approach struggled in the back end, as goods inflation persisted far longer than the "transitory" label suggested, eventually bleeding into services inflation. With the current conflict still new, the Fed is likely to avoid committing to a long-term policy path. A cautious, month-by-month approach would actually be somewhat constructive for equities, as it avoids signaling alarm.
There is also the question of Fed Chair Jerome Powell's tenure. With his chairmanship potentially nearing its end, he may shorten the typical three-to-six-month policy outlook, leaving room for a successor to set the longer-term direction. This adds another layer of uncertainty to the Fed's communication strategy.
Retail Earnings: A Tale of Tariffs and Shifting Consumer Behavior
Lululemon: Beat on the Quarter, But Tariffs Cloud the Outlook
Lululemon delivered a holiday quarter that beat expectations — revenue of $3.64 billion versus the Street's $3.58 billion, and adjusted EPS of $5.00. Comparable sales grew 3% in Q4. Yet shares slipped about 1%, and the reason is straightforward: forward guidance disappointed.
The 2026 revenue guide of $11.35–$11.50 billion came in below the consensus estimate of $11.52 billion, and adjusted EPS guidance of $12.10–$12.30 fell short of the Street's $12.58 expectation. The real story lies in the margins. Q4 gross margins fell 550 basis points to 54.9%, and the company attributed 520 basis points of that decline directly to tariffs. Management expects a roughly $380 million tariff hit in 2026.
International sales growth remains a bright spot, beating expectations. But North American sales are lackluster, and the company still needs to work through excess inventory while bringing fresh product to market. Reshoring production to avoid tariffs is not currently feasible, so Lululemon may be forced to wait and hope for eventual tariff relief — a precarious strategic position.
Macy's: Clearing a Low Bar
Macy's entered its earnings report with very low expectations and managed to clear them. Adjusted EPS came in at $1.67 versus the $1.53 consensus, and revenue of $7.64 billion edged past the $7.62 billion estimate. Comparable sales grew 1.8% year-over-year.
The results were bolstered by a $328 million pre-tax legal settlement gain, and forward guidance was softer — 2026 adjusted EPS guidance of $1.90–$2.10 missed the Street's $2.18. Still, the company appears to be managing its business more effectively. Critically, Macy's higher-end segments are thriving: Bloomingdale's sales grew 8.5% year-over-year, and Bluemercury increased 2.5%. This bifurcation — strength at the top, weakness in the middle — reflects the broader consumer environment, where macroeconomic uncertainty pressures the core mass-market shopper while affluent consumers continue spending.
OKLO: The Long Road for Nuclear Innovation
OKLO, the advanced nuclear energy company, reported earnings that reflected its pre-revenue status. Revenue was $0, and the adjusted loss per share was 27 cents, wider than the 17-cent loss the Street expected. Cash burn is accelerating as the company works to bring its first reactor online.
However, the more meaningful development was the Department of Energy's approval of a nuclear safety design agreement for OKLO's Aurora reactor project — another critical milestone in its path toward operational status. The stock barely moved on the earnings miss, suggesting that both analysts and investors are looking through near-term losses toward the long-term potential. The company's ability to continue hitting DOE milestones and securing commitments from hyperscaler clients will be the key catalysts. But make no mistake — there is still a great deal of work ahead, and this remains a multi-year story.
Looking Ahead: Brace for Volatility
From an options flow perspective, the S&P 500 faces resistance at the 5,800 call level, with downside gamma exposure sitting at 5,655 — a range that has tightened by 55 points over the past week. The implied move is 1.3% in either direction.
Normally, markets remain calm ahead of a Fed meeting, with the reaction coming after the announcement. This time, given the overlay of an active military conflict, volatile oil markets, and tariff uncertainty weighing on corporate outlooks, that pattern may not hold. The combination of geopolitical risk and monetary policy uncertainty makes for an unusually charged environment — one where investors should be prepared for sharp moves in either direction.