The uproar between President Donald Trump and European leaders concerning Greenland prompted investors to offload US holdings earlier this week; however, the market distress eased on Wednesday as the President adopted a softer stance, announcing he would refrain from imposing the recently threatened tariffs on imports from certain European nations.
Equities rallied this morning following Trump’s declaration that he would not employ “overwhelming force and might” to acquire Greenland, even as the President maintained his pursuit of the Danish territory. Stocks surged and continued upward through the afternoon after Trump posted on social media about a productive discussion with NATO Secretary General Mark Rutte, confirming he would not enact the scheduled tariffs against European countries set for February 1st.
Stocks concluded the day with significant gains, recovering from Tuesday’s performance, which marked their worst session since October.
The Dow rose by 589 points, or 1.21%, reversing course after a 871-point plunge on Tuesday. The S&P 500 finished 1.16% higher, experiencing its best trading day since late November. The tech-heavy Nasdaq climbed 1.18%, marking its best day in a little over a month. The S&P 500 is now merely 1.6% short of its record high.
“Following a very productive meeting with NATO Secretary General Mark Rutte, we have established a framework for a future agreement on Greenland and, indeed, the entire Arctic region,” Trump shared on Truth Social.
The sudden reversal after Trump’s statement caused swift relief across markets: the S&P peaked at a 1.67% intraday gain before paring some of those increases. Despite the sharp shift in tone, some analysts had anticipated Trump backing down from his tariff threats—the “Trump Always Cautious Only” trade, abbreviated as TACO, became a popular subject on Wall Street.
Although specifics of the deal remain unclear, Wall Street enjoyed a lift due to the change in sentiment.
“It appears that it’s TACO Tuesday on Wednesday,” Art Hogan, Chief Market Strategist at B. Riley Wealth Management, told CNN.
Volatility had been escalating prior to Trump striking a more conciliatory note.
Initially, investors revived the “Sell America” trade this week, shedding US stocks, bonds, and the dollar. Equities endured their worst day since October on Tuesday, while the dollar saw its poorest showing since August.
Few things sway Trump’s mind, but a negative market reaction is one of them. The “Sell America” trade led analysts to question whether market turbulence would compel the President to reconsider his confrontation with Europe.
Some analysts posit that clashing with Europe might not present sufficient market shock to force a U-turn. However, there was consensus that the bond market would be the crucial barometer.
Treasury yields, which move inversely to bond prices, reached their highest point since September on Tuesday. Rising yields on Japanese government bonds also exerted pressure on Treasuries, heightening market anxiety.
The yields on 10-year and 30-year Treasuries set the tone for interest rates across the US economy. When investors sell Treasuries, yields rise, increasing borrowing costs for the US government, businesses, and consumers. A sustained sell-off could have driven yields sharply higher, becoming a genuine problem for the government and elevating the cost of capital.
“The only thing that frightens Trump more than something else is the US bond market,” noted Neil Wilson, a strategist at the UK trading platform Saxo Markets, in a memo. “The bond market is possibly the only thing that will stop Trump from going all the way on Greenland.”
The “Sell America” trade echoes the events of the spring, when Trump’s announcement of so-called “Summertime” tariffs jolted global financial markets, leading investors to sell stocks, bonds, and the dollar simultaneously on a more dramatic scale.
Treasury yields spiked in April so aggressively and abnormally that the Trump administration chose to pause the majority of planned tariffs for 90 days. Bond investors were being “bullish,” Trump remarked. The upheaval in the bond market—which impacts borrowing costs throughout the US economy—prompted the President to abandon his most severe tariff threats.
The market stress on Tuesday was considerably less severe than in April, and it remains uncertain whether it played a role in the conciliatory conversation between Trump and Rutte. Regardless, the “Sell America” trade reversed by Wednesday afternoon: stocks climbed, the dollar firmed slightly against other currencies, and US bonds rallied, pushing yields lower.
“The Greenland episode appears to be moderating and reversing the recent sell-off, although the specifics of the ‘framework’ are still emerging,” Eric Thole, Chief Investment Officer at Comerica Wealth Management, stated via email.
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