US Stock Selloff Deepens on Tariff Fears, Global Bond Rout

(Bloomberg) — US stocks extended declines amid worries over a full-blown trade war with Europe and a selloff in Japanese bonds that sent US Treasury yields higher.

S&P 500 Index fell 2.05% at 2:26 p.m. in New York in its biggest decline since October, erasing its year-to-date gains. The Nasdaq 100 slid 2.08%. Wall Street’s complacency was shaken as the Cboe Volatility Index, or VIX, jumped above 20 to reach the highest level since November. Gold rallied, Treasuries fell and the dollar retreated.

Volatility rattled financial markets after President Donald Trump continued to insist the US should control Greenland, the semi-autonomous island owned by Denmark, a staunch NATO ally. His threat to impose 10% tariffs on European nations that don’t acquiesce was met with outrage across Europe. Leaders there planned an emergency summit to discuss options, including tariffs on €93 billion ($109 billion) of US goods.

“I think the odds are very high we have a major decline this year, even the bear market. With the S&P 500’s break of the 6,900 region last week, and with today’s gap lower, the market has opened the door to a potential top being in place,” said John Kolovos, chief technical strategist at Macro Risk Advisors.

“If we then see sustained follow-through below 6,825 which is currently being tested, the odds jump that a top is or at the very least, a major retracement is underway,” he added. “At a minimum we will likely see a retest of the November lows or the 6,550.”

To Societe Generale strategists including Jitesh Kumar, the VIX futures curve will likely invert around the 21 level for front-month contracts. That would be an important signal for many systematic investors looking at the volatility curve to start de-leveraging.

The spike in the VIX could cause volatility control funds to start reducing long-equities positioning, according to Laurent Laskowski, director of equity derivatives at the research firm Strategas Securities. A move of around 1% in the S&P 500 would lead vol control funds to cut equities exposure by 2%, but a 2% move in the S&P 500 equates to a 10% cut in such fund’s long positions.

“Investors entered today’s selloff largely unhedged, and the options market continues to show a clear bias toward buying the dip, selling volatility spikes, and fading perceived stress rather than scrambling for protection,” said Chris Murphy, co-head of derivatives strategy at Susquehanna International Group. “The same playbook has defined market behavior for much of the past few years, where drawdowns have been shallow and dip-buying rewarded. The risk, of course, is not what investors are doing — but how crowded that assumption has become.”

Here are some stocks investors are watching amid trade war converns:

Shares of French luxury group LVMH Moet Hennessy Louis Vuitton extended a selloff in New York trading after the US president signaled he could impose a 200% tariff on French wines and champagne.

CNH Industrial NV declined the most among makers of agricultural equipment. Deere & Co. and AGCO Corp. also dropped.

Auto stocks also followed the broader market lower. Ford Motor Company shares dropped 0.5%, General Motors Co and Stellantis NV declined by 4.0% and 2.6%, respectively. Tesla shares fell as much as 3.2% on Tuesday with the slide pushing the electric-vehicle maker’s stock price below its 100-day moving average for the first time in more than six months.

Travel stocks are mostly lower. The S&P 1500 Hotels, Resorts, and Cruise Lines Index fell 2.6%. A worst case scenario, where there is further political escalation, resulting in travel bans and a boycott of the FIFA World Cup or 2027 Rugby World Cup boycott, would likely weigh on the earnings of nearly all travel companies, but Marriott International Inc. and Airbnb Inc. are among those “most at risk,” wrote Bernstein analyst Richard Clarke.

The S&P 500 Index wiped out this year’s gains with investors bracing for a busy stretch of potential catalysts, including the president’s speech at the World Economic Forum in Davos.

Bond markets also came under pressure. Longer-dated US Treasury yields climbed after turmoil in Japan’s debt market sent shockwaves across global rates. The yield on the 30-year Treasury rose to 4.90%, tracking a selloff that pushed Japan’s 40-year yield to a record high as investors balked at Prime Minister Sanae Takaichi’s campaign proposals to cut food taxes.

Safe-haven assets outperformed amid the volatility. Gold surged past $4,700 an ounce for the first time, while silver also notched a record. As the dollar weakened, the Swiss franc posted its biggest two-day advance since April.

Cryptocurrencies also fell sharply as risk assets slipped and haven demand strengthened. Bitcoin declined by more than 2% for a second straight day to below $91,000.

The latest market turmoil will test elevated risk appetites. Before this weekend, investors were the most bullish in nearly five years, while demand for equity downside protection was at its lowest since 2018, according to Bank of America Corp.’s latest fund manager survey.

As earnings season picks up steam, expectations remain high. Analysts forecast fourth-quarter S&P 500 earnings growth of about 8%, according to Bloomberg Intelligence, with investors focused on themes including artificial intelligence spending, oil-market volatility and tariff risks. Of the 33 companies that have reported so far, 88% have beaten estimates.

In corporate news, Lululemon Athletica Inc. shares dropped 5.70% after the firm removed its new Get Low line of workout apparel from its website just days after its debut.

Netflix Inc. agreed to an amended all-cash deal to acquire Warner Bros. Discovery Inc.’s studio and streaming assets as it competes with Paramount Skydance Corp. for one of Hollywood’s most storied entertainment franchises. Netflix is scheduled to report earnings after the close Tuesday with investors being concerned about Netflix’s slowing flow of subscribers and the sustainability of its growth.

3M Co. shares fell after the industrial company gave an outlook for this year’s adjusted earnings per share with a midpoint below what analysts expected. U.S. Bancorp reported profit and a forecast for revenue that beat analysts’ estimates. And ServiceNow Inc. shares edged higher as the software company and OpenAI signed a multi-year agreement that will allow customers to use OpenAI models and custom AI capabilities.

Elsewhere, US gas stocks are rising after natural gas futures gained the most on record as an Arctic blast is forecast for two-thirds of North America through next week.

–With assistance from Matthew Griffin.

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