The S&P 500 dropped as much as 1.5%,<\/a> briefly erasing all of this year\u2019s gains, before paring the drop. The VIX Index, a measure of expected stock-market swings, topped the highest since November, and gold \u2014 a go-to haven \u2014 rose to a new record of over $4,700 an ounce.<\/p>\nThe moves show that investors\u2019 previous willingness to shrug off Trump\u2019s actions \u2014 including the White House\u2019s capture of Venezuela\u2019s leader, its threats to nearby countries, and renewed attacks on the Federal Reserve \u2014 is beginning to erode.<\/p>\n
But Trump\u2019s demand for US control over Greenland is stoking investor anxieties about potential worst-case scenarios, including a rupture in the NATO alliance, a full-blown trade war, or European steps to foment market turbulence as a way to force the Trump administration to back down.<\/p>\n
\u201cOur bet is that in the base case the severity will ultimately still be contained as investors bet on some version of a compromise,\u201d wrote Krishna Guha, head of central bank strategy at Evercore ISI. \u201cBut the impacts would be very severe if this goes off the rails, and there will be long-lasting implications, including for the dollar.\u201d<\/p>\n
Volatility across US bonds, equities and the dollar over the past month had sunk to the lowest since at least 1990.<\/p>\n
That\u2019s in part because traders have largely learned to tune out Trump\u2019s daily salvos, wagering that the worst of his threats won\u2019t come to pass. The tactic, honed after the April market meltdown drove him to pause his tariffs, became known as the TACO trade \u2014 with investors seeing selloffs as a chance to buy. The dynamic seemed to be at play on Tuesday, when US stocks and bonds pared their losses as the day wore on.<\/p>\n
With European leaders now grappling over how to push back against Trump.<\/p>\n
\u201cIf I were an advisor to some European governments, I would say you almost need to create a little bit of market volatility because Donald Trump cares about that a lot, probably more than other politicians,\u201d said Michael Krautzberger, chief investment officer for public markets at Allianz Global Investors, Germany\u2019s largest asset manager.<\/p>\n
The global market selloff was first triggered by domestic issues in Japan, where yields on 30-year debt surged over a quarter percentage point on concerns about Prime Minister Sanae Takaichi\u2019s plans to cut taxes and boost spending. The jump threatened to unravel so-called carry trades \u2014 which involve buying global assets with low-interest loans in Japan \u2014 and helped push up bond yields elsewhere.<\/p>\n
Meanwhile, Trump\u2019s bellicose stance toward European allies fanned fears that it would give investors another incentive to pull back from US Treasuries, which would likely put upward pressure on interest rates.<\/p>\n
Danish pension fund AkademikerPension announced it will exit US Treasuries by the end of the month amid concerns that the Trump administration has created credit risks too big to ignore.<\/p>\n
\u201cThe US is basically not a good credit and long-term the US government finances are not sustainable,\u201d Anders Schelde, chief investment officer at AkademikerPension, told Bloomberg on Tuesday.<\/p>\n
The widespread view among investors is that the US and Europe will reach a diplomatic solution on Greenland. But the chaotic style of White House negotiations, with Trump adding French champagne to his list of tariff threats, is putting a chill on market confidence.<\/p>\n
US stock investors had lately given little heed to geopolitical frictions, with stocks continuing to climb in early January, as the artificial-intelligence boom and strong profit outlook took center stage. In Bank of America Corp.\u2019s latest survey, investors were the most bullish since July 2021 and reported record low cash levels.<\/p>\n
At Jefferies, strategist Mohit Kumar speculated that a deal will eventually be struck that defuses the tension over Greenland. Yet an agreement could take months, leaving the markets facing heightened volatility in the meantime.<\/p>\n
\u201cBeneficiaries of the rise in geopolitical tensions would be defense stocks, financials and gold, and we are long these in our portfolio,\u201d he wrote.<\/p>\n
At La Financi\u00e8re de l\u2019\u00c9chiquier, Alexis Bienvenu echoed that sense of concern.<\/p>\n
\u201cThere is a bit of fear in the market of how far he can go on new types of threats,\u201d the portfolio manager said. \u201cWe know that in many cases Trump has threatened companies and countries with very high tariffs, but at the end he engages in negotiations.\u201d<\/p>\n
\u2013With assistance from Sagarika Jaisinghani.<\/p>\n
More stories like this are available on bloomberg.com<\/a><\/p>\n\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"By Lynn Thomasson and Sabrina Nelson Garcinu\u00f1o, Bloomberg For weeks on Wall Street, markets were unusually subdued as…\n","protected":false},"author":2,"featured_media":419908,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[36],"tags":[28,101,2558,22940,2793,923,74,918],"class_list":{"0":"post-419907","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-latest-headlines","11":"tag-morning-wire","12":"tag-silicon-valley","13":"tag-stocks","14":"tag-technology","15":"tag-wall-street"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/419907","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/comments?post=419907"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/posts\/419907\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media\/419908"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/media?parent=419907"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/categories?post=419907"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us\/wp-json\/wp\/v2\/tags?post=419907"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}