Ever get that strange feeling when the stock market is hitting all-time highs at the exact same moment the world seems to be teetering on the edge? That was last Friday for me.
Thanksgiving hangover barely over, traders came back and pushed the S&P 500, Dow, and Nasdaq firmly into the green. Everyone was smiling, talking about Santa Claus rallies and soft landings. Yet overnight, drones were blowing up oil tankers in the Black Sea and the incoming U.S. administration was threatening to close an entire country’s airspace. Cognitive dissonance doesn’t even begin to cover it.
The Disconnect Between Wall Street and the World
I’ve been doing this long enough to know that markets can stay irrational longer than most of us can stay calm. Still, the gap between price action and headline risk right now feels wider than usual.
Major U.S. indices closed the holiday-shortened week with solid gains – half a percent here, six-tenths there – nothing earth-shattering on paper. But futures this morning are already pointing lower, and Asian markets are all over the place. Meanwhile bond yields are creeping up again, with the 10-year Treasury nudging above 4% and Japanese 2-year yields hitting a 17-year high after the BOJ governor basically said “we’re probably hiking in December.”
And oil? Brent just jumped more than a percent because someone decided the weekend was the perfect time to send drones into Russian “shadow fleet” tankers and then hit the Novorossiysk terminal itself for good measure. Operations halted, prices spiked, traders shrugged.
Drone Wars: The New Normal Nobody Wants to Price In
Let’s be honest – cheap drones have completely changed the cost-benefit calculation of modern conflict.
A few million dollars’ worth of UAVs can now take out hundreds of millions in energy infrastructure. We saw it in Saudi Arabia in 2019, we’re seeing it weekly in the Black Sea now, and apparently Moldova is the latest country getting surprise Russian drone visits. Poland, Germany, Romania, the Baltics – nobody’s airspace feels sacred anymore.
NATO has fighter jets on standby to shoot them down, but think about that for a second. You’re spending tens of thousands of dollars per flight hour to intercept something that probably cost a few thousand to launch. It’s the ultimate asymmetric play, and reports suggest Russia’s supply chain – heavily supported from the east – is outproducing Western support for the other side by a wide margin.
“Russia is receiving superior supply chain support from China than Ukraine is receiving from the United States and Europe combined.”
– Ukrainian drone unit commander quoted in recent analysis
That quote should chill anyone who still believes this conflict is going to reach a tidy conclusion anytime soon.
Peace Talks in Florida, Corruption Scandals in Kyiv
While drones fly, diplomacy is apparently happening in… Florida.
Senior Ukrainian officials sat down with incoming Secretary of State Marco Rubio and Trump envoys Steve Witkoff and Jared Kushner over the weekend. Notably absent? The powerful chief of staff who just resigned amid anti-corruption raids on his home. Timing, as they say, is everything.
The incoming president sounded cautiously optimistic on Air Force One, saying there’s a “good chance” of a deal but that the corruption revelations are “not helpful.” You don’t need a PhD in negotiation to see how that shifts leverage.
Witkoff is reportedly heading to Moscow today. If something concrete actually comes out of this, it would be one of the fastest diplomatic turnarounds in modern history. I’m not holding my breath, but the fact we’re even talking about it shows how quickly the landscape can shift when a new sheriff is coming to town.
Venezuela: From Drug War to Potential Regime Change
Speaking of sheriffs… remember when the Venezuela story was mostly about sanctions and socialism gone wrong? Those days feel quaint.
Over the weekend the incoming administration announced the airspace “above and surrounding Venezuela to be closed in its entirety.” That came after the largest U.S. military deployment to the region in decades and missile strikes on suspected drug-running boats.
Trump confirmed he recently spoke with Maduro by phone but gave no details. He previously floated the idea of land strikes and said the U.S. is prepared to do things “the hard way” if necessary.
Whether the goal is purely narcotics enforcement, securing oil assets, or outright regime change, the escalation ladder just got a lot taller. And energy markets – already jumpy from Black Sea developments – now have another live wire to worry about.
Central Banks Refusing to Play Along
Meanwhile, in the one corner of the world still pretending 2025 will be boring, central bankers are quietly tightening the screws.
The Bank of Japan is finally, actually, seriously considering another rate hike – something that would have been unthinkable even six months ago. Governor Ueda’s comments sent the yen jumping and Japanese bond yields to levels not seen since the early 2000s.
- 2-year JGB yields → highest in 17 years
- 10-year JGB yields → pushing toward 1%
- USD/JPY → sharp drop on hike expectations
If Japan really does move this month, it will remind everyone that policy normalization isn’t just a Fed story anymore. Carry trades unwind, dollar strength wavers, emerging markets breathe – the ripple effects could be massive.
So Why Are Stocks Still Going Up?
This is the question keeping me up at night.
Perhaps it’s simple: hope trades faster than fear. Markets are pricing the most benign possible outcome of every scenario right now – quick Ukraine settlement, orderly Venezuela transition, contained Middle East, synchronized global growth, immaculate disinflation.
Or maybe positioning is so light after the summer drawdown that any whiff of good news sends algos piling in. Or perhaps investors genuinely believe the new U.S. administration will wave a wand and make the hard problems disappear.
Whatever the reason, risk assets are behaving like nothing matters until it really, really matters. We’ve seen this movie before. Sometimes it ends with a blow-off top. Sometimes with a crash. Usually with both, just not at the same time.
What I’m Watching This Week
- Any concrete leaks from the Moscow talks – even rumors move oil now
- Venezuela airspace developments – if U.S. actually enforces a no-fly zone we’re in uncharted territory
- BOJ meeting minutes and any follow-up commentary from Ueda
- Month-end flows – pension rebalancing could provide tailwind into December
- Technical levels: S&P 6,000 psychological, Nasdaq 20,000 round number, Brent $80
In my experience the moments when everything seems aligned – great price action, hopeful diplomacy, seasonal tailwinds – are exactly when you need to tighten risk management the most.
Because when the sky really is the limit, gravity tends to reassert itself at the worst possible time.
Stay nimble out there.
