Geopolitical Shocks and Policy Battles: Mid-term Risks U.S. Stocks Need to Watch in 2026

The U.S. stock market at the beginning of the year faces multiple uncertainties. Geopolitical turmoil, shifts in energy policies, and fiscal risks intertwine, posing significant challenges to the medium-term trajectory of U.S. equities.

Oil Prices Take Center Stage as Geopolitical Turmoil Influence U.S. Stocks

Early January geopolitical events triggered sharp adjustments in global capital flows. Funds flooded into traditional safe-haven assets like the U.S. dollar and gold, with the dollar index briefly rising to 98.8, hitting a recent high. Meanwhile, gold prices surged over 2% to $4,426.50, while WTI crude oil fell below $57.00 at one point.

Behind this market reaction lies a key variable: the movement of oil prices and their profound impact on U.S. stocks. Energy costs directly affect corporate profits, especially in transportation, manufacturing, and other traditional sectors. High oil prices also boost inflation expectations, which in turn influence the Federal Reserve’s policy space—crucial for the future performance of tech-heavy U.S. stocks.

The Trump administration’s actions in early January seem aimed at this critical factor. The U.S. announced plans to rebuild Venezuela’s energy infrastructure to access its abundant oil resources. This move is driven not only by energy security—Venezuela holds the world’s largest proven oil reserves, with heavy oil reserves exceeding 3 trillion barrels—but also reflects a certain policy intent regarding oil prices.

Beyond oil, Venezuela also possesses rich strategic resources such as natural gas, gold, bauxite, and coal. These raw materials are vital for U.S. infrastructure, heavy transportation, and even AI data centers. U.S. oil companies have committed billions of dollars to energy infrastructure upgrades, indicating that Washington views long-term energy supply as a strategic priority.

OPEC+ Pauses Production Increases; Can Trump Successfully Suppress Oil Prices?

In early January, OPEC+ announced a significant decision: to suspend new production increases in January, February, and March 2026, maintaining output levels consistent with the end of the previous year. This marks the first halt in OPEC+’s recent pace of increasing production.

Looking back, since 2023, OPEC+ launched two rounds of large-scale voluntary production cuts—165,000 and 220,000 barrels per day respectively. These measures aimed to stabilize the market but had limited effect, as oil production in the U.S. and Canada surged, eroding OPEC+’s market share. To counter this, OPEC+ gradually increased production from April 2025, with monthly gains ranging from 137,000 to 548,000 barrels by the end of 2025.

The current pause indicates OPEC+ faces a dilemma: continuing to increase output would depress international oil prices and hurt member revenues; halting increases is seen as a concession to the Trump administration. Either choice fails to fully satisfy all parties.

Market expectations suggest that in 2026, the global oil market will be oversupplied, and current prices already reflect this outlook. This implies increased volatility in oil prices, which directly transmits to U.S. stocks—especially energy sectors and cost-sensitive industries.

Fiscal Dominance Threats Approaching; Inflation and Debt Limit U.S. Stock Upside Limited

More profound risks stem from the fiscal realm. U.S. former Treasury Secretary and former Fed Chair Janet Yellen warned in early January that “fiscal dominance” is intensifying.

What is fiscal dominance? Simply put, as government debt continues to grow, the Federal Reserve may be forced to keep interest rates low to ease debt servicing burdens—serving political goals rather than economic health. Yellen highlighted that Trump had publicly called for the Fed to lower interest rates to ease government debt, and if such demands are met, the U.S. risks descending into a “banana republic”—a term for chaotic governance and economic collapse.

This warning is not alarmist. The U.S. faces an “impossible trinity”: implementing tariffs → raising inflation → forcing the Fed into a passive choice between rate cuts and inflation control. According to the Labor Department, November’s CPI rose 2.7% year-over-year, with core CPI up 2.6%. While down from September, these figures remain above the Fed’s 2% target.

Market views attribute current inflation mainly to tariff policies—transient shocks. However, if the U.S. government succeeds in increasing oil supply and lowering prices, a new inflation wave could emerge, putting the Fed in a bind. It would need to balance satisfying Trump’s low-interest demands to reduce debt against maintaining financial stability. This contradiction is a key factor limiting the mid-term upside of U.S. stocks.

Notably, Trump will face midterm elections in 2026, and any geopolitical developments could become politicized, increasing market volatility. Additionally, Trump’s expected mid-year visit to China and the evolving U.S.-China relationship will influence global capital flows.

Nasdaq Technicals Under Pressure; 25,300 Key Support Level

Looking at specific U.S. stock indices, the Nasdaq 100 rose 0.36% during the period, temporarily stabilizing above 25,300 points. After four consecutive days of decline, the index failed to break lower, and the overall upward trend remains intact.

Technical analysis suggests that if the Nasdaq can hold above 23,900 points, the medium-term bullish pattern can continue. However, the immediate resistance level is at 25,300 points. A breakout above this could lead to a rebound toward 26,000, and eventually toward 27,630. Conversely, a failure to hold this level signals growing market concerns.

Medium-Term U.S. Stock Investment Strategy

Considering the multiple factors of geopolitical risks, energy policies, and fiscal challenges, U.S. stocks may continue to rise in the short term but require careful timing in the medium term. With the U.S. debt issue unlikely to be resolved soon, market focus will shift increasingly toward the deepening of AI applications—transitioning from infrastructure investment to actual productivity improvements. This shift will reshape the investment logic of U.S. stocks.

Lower oil prices help ease corporate costs, but fiscal-driven low interest rates and liquidity could lead to asset bubbles. In this environment, blindly chasing index highs is unwise. Investors should focus more on companies with real profit growth rather than those relying solely on valuation expansion—this will determine the true performance of U.S. stocks by mid-2026.