Muzinich Weekly Market Comment: No Volatility

January 12, 2026

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We have started 2026 on positive footing. In many respects, the new year appears to be a continuation of how 2025 ended. Government bond yields have remained in a tight range; indeed, the MOVE index – our reference point for volatility and uncertainty in the US Treasury market – has fallen to its lowest level since 2021, suggesting investors are broadly comfortable with central bank policy expectations.

The debate has now shifted away from the direction of government bond yields toward the shape of the yield curve. The prevailing consensus favours further steepening, as investors demand greater compensation to hold long-term debt amid concerns over government balance-sheet dynamics and the willingness of policymakers to address them.

This week, European government bonds continued to modestly outperform their US counterparts, reflecting the path of least resistance in price action as investors contemplate the possibility of additional monetary loosening in Europe beyond what is currently priced in, in-line with softer inflation data. In contrast, stronger US activity data are pushing expectations in the opposite direction, prompting questions over whether further monetary easing is warranted.

Corporate credit markets continue to show swagger, underpinned by fundamentals that are significantly healthier than those of many underlying sovereigns. Better diversification, an attractive yield pickup, positive rolldown and underweight positioning in emerging-market credit continue to support the asset class.

As we enter 2026, the macroeconomic backdrop remains constructive for credit markets, with monetary conditions easing and a positive fiscal impulse expected to become an increasingly supportive driver. Echoing the final weeks of December 2025, the new year has begun with high-yield credit continuing to outperform its investment-grade peers, as carry and coupon income once again prove to be the primary drivers of total returns.

Equity markets remain buoyant. Our preferred sentiment indicator, the VIX, remains stable in the lower-uncertainty zone. From a fundamental perspective, S&P 500 earnings growth is projected to reach around 15% year-over-year, marking the third consecutive year of double-digit earnings growth –

well above the trailing 10-year average of 8.6%. Earnings growth is also expected to broaden beyond the “Magnificent Seven,” with only Meta and NVIDIA among the top contributors to index-level earnings growth. Analysts forecast the remaining 493 companies will deliver earnings growth of approximately 12.5% in 2026. ^[1]

The macro environment for equities – as with corporate credit – remains supportive, with financial conditions staying easy, household wealth rising and cash balances near record highs (see Chart of the Week). ^[2] Meanwhile, the US administration is expected to turn its attention to the upcoming midterm elections, where voter concerns centre on cost-of-living pressures. This suggests the worst of tariff-related uncertainties is likely behind us, while the easing of regulations may take on greater urgency.

Equities continue their melt-up, which began in the back end of December, with most major indices trading in the green year-to-date. The Bloomberg World Large & Mid Cap Index has risen over 1.5%, while emerging markets have outperformed advanced economies, with the MSCI EM index up nearly 4%, led by gains in Asia. Global manufacturers are benefiting from a potential shift in focus by the US administration, while commodity producers continue to benefit from rising prices for their goods and improving terms of trade.

Finally, commodities and currencies continue the trends established in 2025, with metal prices moving higher and the US dollar weaker. Industrial metals are being squeezed by restrictive supply and rising demand driven by the build-out of AI infrastructure and the expansion of green energy. The common driving force between price action for precious metals, the US dollar, and energy prices is the US administration’s geopolitical ambitions, with MAGA and national security strategies at the epicentre.

This week, the administration executed an audacious military operation in which US forces captured Venezuela’s sitting president, Nicolás Maduro, in the capital city of Caracas. Maduro was subsequently flown to New York, where he is expected to face a multi-count federal indictment, including charges of narco-terrorism and drug trafficking.

For a geopolitical event to have a significant impact on financial markets, it must deliver an immediate, widely recognized shock that affects either – or both – economic growth and inflation, while also increasing uncertainty about the future. This was not the case. Venezuela’s importance on the global economic stage has declined considerably over recent decades – its share of global GDP has fallen to around 0.1%, and although it holds the world’s largest proven oil reserves, its share of global oil production has fallen from close to 5% around 2000 to around 1% more recently. ^[3] There is “low-hanging fruit,” and consensus estimates range between an extra 300,000 to 500,000 barrels per day coming online by mid‑2027. ^[4] However, this isn’t enough to have a significant impact on oil prices (the commonly cited rough rule of thumb is that a 1 million barrels per day (mb/d) increase in supply leads to about a US$3 fall in price). Oil prices closed the week higher given near‑term supply uncertainty from Venezuela and intensifying protests in Iran.

With volatility across both bond and equity markets falling to levels that reflect high confidence in the economic outlook, 2026 is likely to see volatility driven more by geopolitics – a structural feature that must be understood in the context of the broader unravelling of the post‑1945 international system, as international law and norms are increasingly carrying less weight than military strength and economic power. Understanding this dynamic can help investors better position themselves to seize geopolitical opportunities. Price action in precious metals underscores this trend: they have been the best-performing assets year-to-date, with gold rising nearly 5% and silver up around 10%.

Chart of the Week: Too much cash still sitting on the sidelines

Source: Federal Reserve Bank, as compiled by Citadel Securities, 18th December 2025. For illustrative purposes only.

Past performance is not a reliable indicator of current or future results.

References to specific companies is for illustrative purposes only and does not reflect the holdings of any specific past or current portfolio or account.

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Reference to the names of each company mentioned in this communication should not be construed as investment advice or investment recommendation of those companies. The opinions expressed by Muzinich & Co. are as of January 9, 2026, and may change without notice. All data figures are from Bloomberg, as of January 9, 2026, unless otherwise stated.

References

[1] FACTSET Insight, “S&P 500 CY 2026 Earnings Preview: Analysts Expect Earnings Growth of 15%,” December 19, 2025
[2] Federal Reserve Bank, as compiled by Citadel Securities, December 18, 2025
[3] BNP Paribas, “Global Macro: Impact of Venezuelan regime shift,” January 8, 2026
[4] Bloomberg, “Venezuela Oil Offers Quick Riches for a Select Few,” January 8, 2026

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