On expected lines, benchmark indices on Wall Street sold off sharply as trading resumed after the long weekend. US President Donald Trump’s tariff threats and the resultant geopolitical tensions over Greenland led to selling across the board.
The Dow Jones fell nearly 900 points, while the S&P 500 and Nasdaq collapsed over 2% each. Big Tech stocks lost over $700 billion in market value. The US Dollar index fell against other major and EM currencies, Bitcoin fell below the $90,000 mark, while Wall Street’s fear gauge, the VIX, crossed the 20 mark, reaching the highest since November. Yield on the 10-year bond also hit a four-month high, with the pressure exaggerated by a sell-off in Japanese bonds earlier in the day.
What gained? Haven assets. Spot Gold and Spot Silver prices continued to hit new peaks as investor appetite turned risk-off. Gold prices in the spot market are now above $4,750 an ounce, while Silver prices are nearing the $95 an ounce mark.
The selling pressure on bond yields also came from the Danish Pension Fund announcement, which said that it will be exiting its US treasury positions worth $100 million, citing “poor US government finances”. While the pension fund’s chief said that the Greenland crisis is not directly related to this move, it definitely made the decision easier.
A section of analysts on Wall Street continue to believe that there will be another TACO (Trump Always Chickens Out) trade like the earlier instances once the reactions to his moves go out of proportion, while another remains skeptical as he remains adamant on his Greenland stance with European leaders defying his threats. Deutsche Bank warned that there is scope for further price moves if the rhetoric escalates.
BofA’s latest fund manager survey, conducted before the latest turn of events, showed that the market sentiment is at a “hyper-bull” level, and that investors should increase risk hedges and haven exposure. Invesco also wrote in its note that the moves on Tuesday corroborate their thesis of a weak USD, US underperformance, and higher precious metal prices.
All eyes later this evening will be on Donald Trump and his address at the World Economic Forum in Davos.