Wondering how the Trump administration’s capture of Nicolás Maduro could affect the stock market?
Consider these implications for the short-, medium- and long-term impact on stocks.
Also see how Trump’s mission in Venezuela could impact the middle class.
Short-Term Impact
After closing at 6,858.47 on Friday, Jan. 2, the S&P 500 has risen around 1% at the time of this writing. But that mild movement masks a surge in sectors like oil stocks and defense stocks.
Chevron (CVX) leapt over 6% when trading opened on Monday, Jan. 5. Exxon Mobil (XOM) jumped around 3%. Meanwhile, defense contractor Northrop Grumman (NOC) shot up over 8% in the week of Jan. 5, before losing some of that gain.
Gold and precious metal stocks also surged near record highs. The price of gold hit $4,485.39, approaching its all-time high. That reflects renewed geopolitical fears among investors, as many consider gold a safe haven.
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Medium-Term Impact
Over the next year, investors will keep a close eye on the regime in Venezuela — and its relationship to the U.S.
President Donald Trump himself acknowledged that it will cost billions of dollars to modernize Venezuela’s oil infrastructure. “A tremendous amount of money will have to be spent and the oil companies will spend it, and then they’ll get reimbursed by us or through revenue,” he told NBC News.
Oil companies seem less enthused about investing those billions. A Chevron spokesperson told NBC News that it “remains focused on the safety and wellbeing of our employees, as well as the integrity of our assets.”
Will Venezuela hold open and fair elections? Will a newly elected regime want to work closely with the U.S. and its oil companies? Will oil companies feel comfortable operating there, given the threat of nationalization and domestic terror?
Those answers will send the price of oil — and oil stocks — either skyward or tumbling.
Then there are the indirect geopolitical implications that remain question marks. Business and finance professor Arie Brish of St. Edwards University pointed to how the Venezuela regime change will impact the U.S. relationship with other South American countries, especially Cuba and Colombia. “Then there are the potential side effects, such as China’s actions toward Taiwan, Russia’s war in Ukraine and ripple effects with Iran and the Middle East,” he said.
Long-Term Impact
Venezuela holds the largest confirmed oil reserves in the world. Modern infrastructure and open trade could provide an ongoing supply flow, keeping oil prices low for years to come.
Stephen Callahan at Firstrade Securities sees enormous upside potential in the long run. “If Venezuelan output were to meaningfully return, crude prices could fall into the low-$50 range or below. That would be broadly deflationary for the U.S. and much of the world, since oil is embedded in nearly every part of the economy. Lower energy costs would translate into cheaper gasoline and heating fuel, leaving consumers with more disposable income to spend elsewhere,” he said.
A more open and interconnected Venezuela could reduce outbound migration and stabilize the region. It could also rob Russia, China, Iran and North Korea of a black market oil-producing partner. In theory, that all works to bolster the stock markets of the U.S. and other developed nations.
Still, it remains early days, with many question marks remaining for Venezuela’s future.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Here’s How Trump’s Mission in Venezuela Could Impact the Stock Market