'This Week' Transcript 12-28-25: Speaker Emerita Nancy Pelosi & Rep. Mike Turner

U.S. policymakers discussed continuing military operations against ISIS — including recent strikes in Nigeria undertaken with the Nigerian government and separate strikes in Syria — and signaled a more aggressive second-term posture under President Trump, who has also suggested possible actions against drug trafficking in the Caribbean and potential strikes linked to Venezuela/Colombia. Congress-related political risk remains elevated as Zelenskyy met with President Trump over a peace plan that may involve Ukrainian territorial concessions and demands for long-term Western security assurances, while former Speaker Nancy Pelosi emphasized January 6 fallout, the Democrats’ push to retake the House and install Hakeem Jeffries, and the political value of the Affordable Care Act. The combination of ongoing conflict risk and heightened U.S. political uncertainty supports a cautious, risk-off stance for portfolio positioning rather than an immediate market-moving catalyst.

Analysis

Market structure: Geopolitical risk (continued Ukraine conflict, ISIS strikes, possible wider U.S. operations) asymmetrically benefits defense primes (Lockheed LMT, Northrop NOC, Raytheon RTX), energy producers (XOM, CVX) and cybersecurity firms, while hurting airlines (AAL, BA, JETS ETF), travel & leisure and EM growth assets. Expect 6–18 month margin tailwinds for munitions/defense systems (order-backlog driven; potential +100–200 bps operating-margin lift) and pricing power for select energy names if Russian export constraints persist.

Risk assessment: Tail risks include a rapid escalation (NATO entanglement or broader regional wars) that could spike Brent >$100/bbl and trigger a >200 bps move in 10y yields into safe-haven flows; converse risk is a negotiated ceasefire driven by diplomacy (Trump/Zelensky track) that could compress defense multiples by 10–25% in weeks. Hidden dependencies: U.S. midterm/election outcomes will determine FY+1 appropriations for Ukraine/defense (watch House Speaker dynamics, 30–90 day horizon) and munitions supply-chain constraints (rare metals, precision-guidance components).

Trade implications: Near-term (days–weeks) trade defensively: add 1–3% active long allocations to LMT/NOC and 1–2% GLD/TLT hedges; buy 3–6 month call spreads on ITA or LMT to capture re-rating on renewed orders. Relative trades: long high-visibility defense primes vs short commercial aerospace/airlines (long LMT, short BA/JETS) for 1–3 months, with stop/trim on announced ceasefire or a 12-week confirmed diplomatic settlement.

Contrarian angles: Consensus sees persistent risk-off; what’s underappreciated is speed of political pivots—Trump’s peace push could cause a sharp, short-lived de-risking (10–20% pullback in defense stocks) creating buying opportunities. Historical parallels (post-2014 rearmament cycles) show defense spending programs are sticky—add to winners on 10–15% dips and beware one-off headlines that reverse within 2–6 weeks.

Key Decisions for Investors

• Establish a 2–3% portfolio long position split: 1.25% LMT (Lockheed Martin, NYSE:LMT) and 1.0–1.75% NOC (Northrop Grumman, NYSE:NOC) within the next 10 trading days; scale down 50% within 5 trading days if a formal multisided ceasefire/peace treaty is announced or if a bipartisan FY+1 cut to defense aid >$20bn is passed.
• Deploy a tactical options trade: buy a 3–6 month LMT call spread (buy 5–10% OTM, sell 15–20% OTM) sized to 1% portfolio notional to capture repricing if new order announcements or Congressional supplemental aid (> $25bn) occur; close if implied volatility spikes >100% of 30-day average or if defense names rally >25%.
• Add 1.5–2.5% of capital to tail hedges immediately: 1% GLD (gold ETF) and 1% TLT (long-dated Treasuries ETF) to protect vs escalation-driven risk-off; trim these hedges if DXY rises >3% or 10y Treasury yield increases >50 bps from entry within 30 days.
• Implement a 1–1.5% short/relative trade: short JETS ETF or 1% short position in BA (Boeing, NYSE:BA) versus the LMT long (pair) for 1–3 months, targeting outperformance of long/short leg >10%; cover if TSA/airline load factors recover to >95% of prior-year baseline for four consecutive weeks or Brent falls below $70/bbl.
• Prepare conditional add-on: set limit orders to add another 1–2% to defense positions on a 10–15% pullback (buy-the-dip rule), and conversely lock in profits (trim 50%) if any confirmed international peace agreement reduces combat operations across Ukraine for >30 calendar days.