Wall Street Has Worst Session Since April Meltdown: Markets Wrap

(Bloomberg) — Stocks, bonds and the dollar fell after President Donald Trump threatened tariffs on various European countries before high-level meetings in Davos amid a growing standoff over his ambitions to take over Greenland. Bitcoin plunged. Gold hit all-time highs.

The renewed tensions drove the S&P 500 down 2.1%, erasing its 2026 gain. A gauge of equity volatility jumped to the highest since November. Long-term US yields hit a four-month high, with investors also reacting to a rout in Japanese bonds and news that a Danish pension fund is planning to exit Treasuries. The dollar slid against most major currencies.

Going by the average return of the major exchange-traded funds tracking US stocks, Treasuries, corporate bonds and Bitcoin, Tuesday marked the worst session since April’s tariff-induced selloff.

“This is ‘Sell America’ again within a much broader global risk off,” said Krishna Guha at Evercore. “Global investors at the margin are looking to reduce or hedge their exposure to a volatile and unreliable US. What remains to be determined is the magnitude and duration of these dynamics.”

As Trump heads to the World Economic Forum, he’s stoking a series of disputes with European leaders. Trump hectored the UK over plans to turn over sovereignty of Diego Garcia back to Mauritius, threatened eight European countries with tariffs for opposing his Greenland demands, and now he’s trying to force France to join his Board of Peace.

French leader Emmanuel Macron argued that Europe needs to develop more sovereignty to avoid “vassalization and blood politics.” Chancellor of the Exchequer Rachel Reeves said Britain wants to reduce tensions with Trump’s threat of tariffs.

Treasury Secretary Scott Bessent urged calm, comparing the uproar over Greenland to what he called the “hysteria” that followed Trump’s announcement in April of sweeping tariffs. Trump is expected to arrive in Davos Wednesday.

“Tariff fears are back in focus and are now intertwined in geopolitical matters,” said Paul Stanley at Granite Bay Wealth Management. “While this adds a new wrinkle to the tariff issue, we believe cooler heads will prevail and that these tariff threats are being used as a negotiating tactic for control of Greenland.”

Meantime, the US Supreme Court is dashing any hopes of a quick rollback of Trump’s tariffs. The justices are set to start a four-week recess next week without having ruled on pending challenges to most of the duties imposed over the last year.

The S&P 500 saw its biggest drop since October. Small caps also fell, but beat the US equity benchmark for a 12th straight session. A gauge of tech megacaps lost 3.1%. In late hours, Netflix Inc. delivered solid results, but issued a cautious forecast. United Airlines Holdings Inc. beat earnings estimates.

The yield on 10-year Treasuries climbed seven basis points to 4.29%. The slump in Japanese bonds deepened as investors gave a thumbs down to Prime Minister Sanae Takaichi’s election pitch to cut taxes on food. The dollar slipped 0.3%. Bitcoin sank below $90,000. Gold rose past $4,700 an ounce to a record. Oil topped $60 a barrel.

Read: Trump Suggests Board of Peace Could Supplant United Nations

While traders have been able to get past a whirlwind of other unexpected developments this year — including the White House’s capture of Venezuela’s leader and its renewed attacks on the Federal Reserve — the size of the moves suggests that investors’ willingness to shrug off earlier shocks is beginning to erode.

“Tariff War 2.0, or Territory War 1.0 if you prefer, is in full swing and has potential to cause significant near-term market disruptions,” said Victoria Greene at G Squared Private Wealth. “A lot depends on how the next few weeks play out. So, we are not ‘panic selling,’ but watching carefully and ready for volatility.”

The market reaction is appropriate given the rapidly rising uncertainty, according to Michael O’Rourke at JonesTrading. If the tariffs go into effect or the US illegally annexes Greenland, the drop in stocks should be much more severe, he noted.

There’ll be an “eagle eye” on Davos, what the US does and what Trump says about its bid to acquire Greenland, according to Kyle Rodda at Capital.com.

“There’s a chorus calling that this will be a “TACO” moment: Trump will ‘chicken out’ when the blow back from his actions hits,” he added. “But there’s a chance that this won’t occur, especially given the US president appears dead set on taking Greenland and the Europeans seem resolute in standing up to any bullying.”

Greenland’s prime minister said the Arctic island’s population and its authorities need to start preparing for a possible military invasion — even as it remains an unlikely scenario.

While markets have reacted, there’s room for bigger moves if the rhetoric increases further, noted Jim Reid at Deutsche Bank AG.

“The blow-back from the Administration’s policies towards Greenland is significant,” said Matt Maley at Miller Tabak. “It is raising questions about the future of our relationships in Europe – and even the future of NATO – although that’s not a major concern yet by any means. However, the political and geopolitical landscapes are still becoming more volatile very quickly.”

The latest drama unfolds at a time when investors are the most optimistic on stocks in nearly five years, while protection against an equity correction is at the lowest since 2018, according to Bank of America Corp.’s latest fund manager survey. With BofA’s indicator showing the market at a “hyper-bull level,” it’s time to increase risk hedges and havens, strategist Michael Hartnett said.

“Markets have reacted in a relatively sanguine fashion, and for now, we think that’s probably the right and expected reaction,” said Brian Levitt and Benjamin Jones at Invesco. “We knew the US administration wanted to acquire Greenland, and President Trump has a clear history of threatening high tariffs and then walking them back.”

They also noted that these moves support their core views: A weaker US dollar, higher precious metals prices, and potential outperformance by non-US stocks.

As Europe considers how best to respond to Trump’s latest threats over Greenland’s sovereignty, there’s one extreme potential countermeasure that’s fueling debate among investors.

European countries hold trillions of dollars of US bonds and stocks. That’s spurring speculation they could sell such assets in response to Trump’s renewed tariff war. That’s easier said than done. The bulk of these assets are held by private funds outside the control of governments, and in any case such a move would likely hurt European investors too.

Trump expressed confidence that the European Union would continue to invest in the US even if he imposed new tariffs related to his quest to take control of Greenland, a proposal that has angered leaders on the continent.

“While investors could remain worried about Liberation Day 2.0 selling from Europe over the US threat to take Greenland, European investors likely have limited options if they wish to rotate out of Treasuries,” said Gennadiy Goldberg at TD Securities. “However, in the near-term, attempts at diversifying can pressure Treasuries.”

Europeans tempted to weaponize their holdings of US government debt amid the standoff with Trump over Greenland are making a “dangerous bet” that risks backfiring, according to UBS Group AG Chief Executive Officer Sergio Ermotti.

“Diversifying away from America is impossible,” he told Bloomberg Television in Davos. “The US is the strongest economy in the world.”

Citigroup Inc.’s global banking head Vis Raghavan believes investors will pull through the initial “shock and awe” from Trump’s latest tariff threats.

“Hopefully sanity prevails and then you find some compromise, and folks will have to adjust, and this will land well,” Raghavan told Bloomberg Television in Davos.

European policymakers should fuel market turbulence to pressure Trump to back down from his Greenland claim, according to a senior executive at Allianz Global Investors.

“If 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,” said Michael Krautzberger, chief investment officer for public markets at Germany’s largest asset manager.

“Our bet is that in the base case the severity will ultimately still be contained as investors bet on some version of a compromise,” said Guha at Evercore. “But the impacts would be very severe if this goes off the rails, and there will be long-lasting implications, including for the dollar.”

Political headlines are very unlikely to change the positive fundamental trends already in place, according to Paul Christopher at Wells Fargo Investment Institute, who believes the global economy is set to grow faster in 2026, especially in the US.

“Since April 2025, we have seen repeated tariff threats and counter-threats that ultimately have proven to be the opening bids in negotiations that have brought compromise,” he noted.

“The weakness in US equities and Treasuries following Trump’s Greenland rhetoric point toward a return of the ‘sell US assets’ sentiment,” said Ian Lyngen at BMO Capital Markets. “Unlike the persistence of such sentiment seen last year, the current episode is likely to be short-lived.”

Headlines out of Washington partially overshadowed the start of earnings season, and this week is looking like it could be a similar story, noted Chris Larkin at E*Trade from Morgan Stanley.

“The year is still young, but one of its most notable trends has been strength in small- and mid-cap stocks vs. tech softness and rotation away from the market’s longstanding megacap leaders,” Larkin said. “But with stocks starting the week in a defensive posture, it could be a challenge for recent winners to maintain their momentum without some clarity on the political front.”

After the S&P 500 rebounded from the brink of a bear market in April and spent the remainder of the year going from one record to the next, Trump billed it as a sign that he had transformed the US — as he likes to put it — into the world’s “hottest” country.

Measured against stock markets from Tokyo to Frankfurt to financial capitals across the developing world, though, the verdict on Trump’s return to the White House is decidedly less triumphal. In fact, equities worldwide — once the US is excluded — have far outpaced the S&P 500 since he took office a year ago, according to MSCI’s index.

“We have anticipated a reversal out of high momentum stocks in January given current valuations, geopolitical and macroeconomic unknows, tariff rate uncertainty, and a midterm election cycle, none of which bode particularly well for robust market gains,” said Eric Teal at Comerica Wealth Management. “The emphasis should be on geographic and sector diversification and playing defense at this juncture.”

Opportunities exist outside of large cap technology including regional/mid-sized banks and quality small cap companies as well as consumer staples and healthcare that offer downside protection, he added.

Beneficiaries of the rise in geopolitical tensions would be defense stocks, financials and gold, and we are long these in our portfolio, said Mohit Kumar at Jefferies.

“Investors and the US administration are likely to keep focus on the US Treasury bond market, which weakened modestly in the wake of US President Trump’s latest tariff threats,” said Paul Donovan at UBS Global Wealth Management. “The implications of additional tariffs are more US inflation pressures and a further erosion of the USD’s status as a reserve currency.”

“The threat of tariffs and the potential for EU retaliation are fuelling fears of a renewed trade war,” said Fiona Cincotta at City Index. “There is hope that the US administration could de-escalate at the World Economic Forum this week.”

Meantime, the Citigroup Inc. strategist who called European stocks’ outperformance has turned more cautious on the region, citing worsening relations between Brussels and Washington over Trump’s push to seize Greenland. Beata Manthey cut stocks in continental Europe to neutral from overweight.

“Investors should be prepared for ‘wildcard’ developments on tariffs and trade this year, as well as a range of potential market reactions,” said Anthony Saglimbene at Ameriprise. “At least early in the new year, the White House has laid down several wildcards that have forced investors to remain on guard.”

While the geopolitical risks are troubling in the short term, in the bigger picture, investors remain bullish on stocks and expectations for economic growth and strong earnings in 2026, according to veteran Wall Street strategist Louis Navellier.

“Odds are likely that today will be seen as a buying opportunity,” he said.

The best US stock market returns have come when policy uncertainty has been the highest, according to investment strategist Jim Paulsen.

“Peace and stability may be emotionally attractive but could prove boringly unsatisfying when it comes to investment returns,” Paulsen writes, citing Baker, Bloom and Davis economic policy uncertainty data. Yet, historically, he says that “‘uncertainty’ has frequently been an investor’s best friend.”

Corporate America is heading for another solid earnings season, according to Morgan Stanley’s Michael Wilson, after analysts set a low bar with expectations for the smallest profit increase in almost two years.

Data compiled by Bloomberg Intelligence show S&P 500 earnings per share are predicted to rise by 8.4% for the fourth quarter, the lowest since early 2024. Wilson said the stage is set for firms to beat estimates by over 5 percentage points, a rate he said would be above average.

US stocks are heading into a high-stakes reporting season as a solid start to 2026 recently lifted the S&P 500 to record highs. With the gauge trading above long-term valuations, Wilson said companies will need to top expectations on both sales and earnings to drive “meaningful” outperformance.

“While we are mindful of potential short-term volatility, we expect global equities to rise further and recommend under-allocated investors to add exposure,” said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. “Those who are concerned of market swings should ensure they hold a well-diversified portfolio, and consider gold or capital preservation strategies to manage potential drawdowns.”

Corporate Highlights:

Netflix Inc. reached an amended, all-cash agreement to buy Warner Bros. Discovery Inc.’s studio and streaming business as it battles Paramount Skydance Corp. to acquire one of Hollywood’s most iconic entertainment companies. The US Federal Trade Commission will appeal a federal judge’s decision that Meta Platforms Inc. doesn’t have a monopoly in social networking, an agency spokesman said Tuesday. 3M Co.’s profit outlook fell narrowly short of Wall Street’s expectations for this year, a sign of the challenges the company faces as it tries to revamp operations and grow in an uneven economy. Lululemon Athletica Inc. removed a new line of training apparel from its website just days after its debut, with some customers complaining that the leggings are too thin. Boeing Co. shares have recouped their losses following the midair near-disaster involving one of the company’s jets in January 2024, a sign that investors continue to gain confidence in a turnaround under Chief Executive Officer Kelly Ortberg. Homebuilder D.R. Horton Inc. missed analysts’ estimates for quarterly home orders even as mortgage rates slid. U.S. Bancorp reported profit and a forecast for revenue that beat analysts’ estimates as lower interest rates make deposits cheaper and boost yields on securities the bank holds. Wells Fargo & Co. is moving the headquarters for its wealth-management business to West Palm Beach, becoming the first big bank to run that operation from the heart of the wealth boom in South Florida. Goldman Sachs Group Inc. and Qatar Investment Authority have agreed to expand their strategic partnership in a move that could see the sovereign wealth fund commit a total of $25 billion with the Wall Street bank’s asset management arm. Artificial intelligence will displace so many jobs that it will eliminate the need for mass immigration, according to Palantir Technologies Inc. Chief Executive Officer Alex Karp. Google DeepMind Chief Executive Officer Demis Hassabis said Chinese artificial intelligence companies haven’t been able to innovate beyond the cutting edge of technology and remain about six months behind the frontier AI of the leading western labs. Anthropic Chief Executive Officer Dario Amodei said selling advanced artificial intelligence chips to China is a blunder with “incredible national security implications” as the US moves to allow Nvidia Corp. to sell its H200 processors to Beijing. Michael Saylor’s Strategy Inc. acquired almost $2.13 billion in Bitcoin over the previous eight days, marking the digital asset treasury company’s largest purchase of the original cryptocurrency since July. A personalized cancer treatment developed by Moderna Inc. and Merck & Co. helped prevent the recurrence of high-risk skin cancer after five years, new data confirming its prolonged benefit show. Southern Co. Chief Executive Officer Chris Womack said that after years of flat growth in US electricity use, demand for the company is now expected to jump by 8% to 10% annually thanks to the boom for artificial intelligence. The online brawl between Elon Musk and Ryanair Holdings Plc dragged into a second week, with the world’s richest man again floating the idea of buying the airline after clashing with its chief executive officer. Commodities trader Vitol Group loaded its first oil cargo from Venezuela’s shore-based storage tanks, a move set to help clear bottlenecks and pave the way for the South American crude giant to ramp up production. The lead prosecutors of former Glencore Plc executives are set to depart the UK’s Serious Fraud Office for private sector roles, leaving the crime fighting agency’s bid to tackle high-profile corruption cases in disarray. GSK Plc agreed to buy Rapt Therapeutics, a US-based biotech developing treatments for patients with inflammatory and immunologic diseases, in a deal valued at $2.2 billion. Qiagen NV, the European molecular testing firm, is weighing strategic options including a potential sale amid fresh takeover interest, people with knowledge of the matter said. China has broadened a probe into PDD Holdings Inc. after its employees exchanged blows with regulators, dispatching over 100 investigators from various agencies to the company’s Shanghai headquarters in recent weeks, according to people familiar with the matter. Some of the main moves in markets:

Stocks

The S&P 500 fell 2.1% as of 4 p.m. New York time The Nasdaq 100 fell 2.1% The Dow Jones Industrial Average fell 1.8% The MSCI World Index fell 1.6% Bloomberg Magnificent 7 Total Return Index fell 3.1% The Russell 2000 Index fell 1.2% Currencies

The Bloomberg Dollar Spot Index fell 0.3% The euro rose 0.6% to $1.1720 The British pound was little changed at $1.3435 The Japanese yen was little changed at 158.21 per dollar Cryptocurrencies

Bitcoin fell 3.6% to $89,554.31 Ether fell 6.6% to $2,999.56 Bonds

The yield on 10-year Treasuries advanced seven basis points to 4.29% Germany’s 10-year yield advanced two basis points to 2.86% Britain’s 10-year yield advanced four basis points to 4.46% The yield on 2-year Treasuries was little changed at 3.59% The yield on 30-year Treasuries advanced eight basis points to 4.92% Commodities

West Texas Intermediate crude rose 1.5% to $60.34 a barrel Spot gold rose 1.9% to $4,757.73 an ounce –With assistance from Lu Wang.

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