The oil market supply landscape is adjusting again, and inflation remains high. What is the medium-term volatility risk for the US stock market?

Global Oil Supply Expectations Shift, Potential Oversupply in 2026

On Monday (January 5), influenced by changes in the international political environment, capital flowed into U.S. dollar assets. According to the latest information, the instability in the international political landscape is fueling anxiety in the energy markets.

Notably, OPEC+—the major oil-producing countries’ organization—announced recently that it will maintain the production plan set in early November 2025, deciding to pause additional output increases in January, February, and March 2026, keeping production levels the same as December 2025. This move reflects complex market expectations.

Earlier, in April 2023, OPEC+ announced a voluntary reduction of about 1.65 million barrels per day, and in November 2023, it announced an additional voluntary cut of 2.2 million barrels per day. Since then, these two major production cuts have been postponed multiple times. Meanwhile, oil production in the U.S., Canada, and other countries has increased, putting pressure on OPEC’s share of the global market.

In March 2025, major oil-producing countries decided to gradually increase oil output. In May, June, and July, daily production increased by 411,000 barrels; in August, by 548,000 barrels; in September, by 547,000 barrels; and in October, November, and December, by 137,000 barrels daily. The current decision to pause production increases indicates a shift in market concerns about supply.

Investors should note that the market generally expects a significant oversupply in the international crude oil market in 2026. Current oil prices already reflect this expectation, and volatility in international oil prices is expected to rise markedly in 2026, posing medium-term risks to the global economy, which relies heavily on stable energy supplies.

Inflationary Pressures Persist, the Fed Faces a Dilemma

As the new year begins, former U.S. Treasury Secretary and former Federal Reserve Chair Janet Yellen pointed out at the American Economic Association annual meeting that “fiscal dominance”(fiscal dominance) poses an increasing threat to the U.S. economy. The U.S. faces long-term risks: the continued growth of debt will force the Fed to keep interest rates low to reduce government debt servicing costs, rather than focusing on controlling inflation.

Yellen emphasized that former President Trump publicly called on the Fed to lower interest rates to ease government debt burdens. If the Fed is forced to use low-interest policies to alleviate government debt pressures, the U.S. risks excessive political interference in monetary policy.

Data released by the U.S. Department of Labor on December 18 showed that the Consumer Price Index (CPI) in November rose 2.7% year-over-year, below September’s 3%; core CPI in November increased 2.6% YoY. The Fed’s most closely watched indicator, the core PCE price index, rose 2.8% YoY in September, in line with expectations. The market generally believes that inflationary pressures mainly stem from tariff policies, representing a one-time shock.

However, if there is a major adjustment in the international oil supply landscape, high oil prices could limit further declines in inflation. Elevated oil prices mean the Fed will find it difficult to cut interest rates significantly as Trump wished, becoming a key medium-term risk for the stock market.

Increasing Geopolitical Variables, Caution Needed in Midterm Election Year

Investors should be alert to changes in international energy geopolitics. Considering Trump’s midterm elections in 2026, a series of signs suggest that geopolitical conflicts will remain an important factor investors cannot ignore in 2026.

The instability in the international political environment has posed potential threats to the global energy supply chain. While U.S. stocks may continue their upward trend in the short term, investors should be cautious about the medium term. With short-term difficulties in resolving the U.S. debt issue, market focus may shift more toward the deepening of AI applications, transitioning from infrastructure investment to actual productivity enhancement.

Nasdaq 100 Technical Outlook: Short-term Correction Possibly Over, Watch Key Support

The Nasdaq 100 index recently experienced four consecutive days of decline, but the overall upward trend has not reversed. From a technical perspective, the Nasdaq 100 index rose 0.36% during the period and is temporarily holding above 25,300 points.

From a medium-term perspective, if the Nasdaq 100 stabilizes above 23,900 points, the medium-term bullish trend could continue. In the short term, investors should focus on the support at 25,300 points. If this level is successfully held, there is potential for a rebound toward 26,000 points, and further upward movement toward 27,630 points.

Overall, the U.S. stock market faces a scenario of short-term opportunities and medium-term risks coexisting. Inflation, oil prices, geopolitical factors, and policy expectations will continue to test investors’ risk management capabilities in 2026.