A single sentence can change the market.
On January 21, just as global investors were still digesting the impact of the "Greenland crisis" and the Danish pension fund's "clearing out of the US," Trump suddenly announced the cancellation of new tariffs on eight European countries and claimed that a "framework" for a future agreement on Greenland and the entire Arctic region had been reached.
The market immediately shifted from panic to euphoria. The Dow Jones Industrial Average surged 1.21% to 49,077 points, the S&P 500 rose 1.16% to 6,875 points, and the Nasdaq Composite climbed 1.18% to 23,224 points. All three major indices recovered the losses from the previous day.
TACO reappears: Panic-reversal completed within 24 hours
This is a classic "TACO" (Trump Announcement Causes Overreaction) market phenomenon, where a single statement from Trump triggers an overreaction in the market, only to be quickly reversed by another statement.
Just 24 hours earlier, the market was digesting Trump's threat to impose 10% tariffs on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland. The EU was preparing €93 billion in retaliatory measures, Danish pension funds announced the liquidation of their US Treasury holdings, and global capital was fleeing dollar assets in a frenzy. The S&P 500 plunged 2.06% in a single day, its biggest drop since October of last year.
But Trump suddenly softened his stance on the eve of the Davos Economic Forum, announcing the withdrawal of his tariff threats. Although he still emphasized that "Greenland is vital to U.S. national security," his wording changed from "not ruling out the use of force" to "resolving the issue through an agreement."
Wall Street's interpretation is simple: this was a carefully orchestrated pressure stunt, the objective has been achieved, and it's time to wrap things up.
Goldman Sachs strategists said, "The market has underestimated Trump's negotiating flexibility; the tariff threat is more of a bargaining chip."
Chip stocks rebounded strongly, while US Treasury yields fell slightly.
Individual stock performance confirms the recovery in risk appetite, with chip stocks being particularly strong.
Nvidia shares rose nearly 3%, recovering more than 4% of the previous day's losses. The chip giant, which plunged the previous day due to market panic, rebounded quickly after geopolitical risks eased, demonstrating that institutional investors' long-term confidence in the demand for AI computing power remains unchanged.
Amgen surged nearly 4%, leading the Dow Jones Industrial Average. The Big Seven tech stocks rose 0.98%, with Tesla up nearly 3% and Google up nearly 2%.
Chinese concept stocks also rebounded collectively, with Baidu rising more than 8% to lead the gains, and 21Vianet rising nearly 7%. The Chinese concept stocks, which suffered a sharp decline the previous day, recovered quickly after risk aversion subsided.
The bond market reacted relatively restrainedly. The 10-year U.S. Treasury yield fell 1 basis point to 4.28%, a slight pullback from the previous day's high of 4.29%, but still within its high range since September of last year.
A more crucial signal came from Japan. The yield on Japan's 10-year government bonds fell 5 basis points to 2.32%, while the 40-year yield fell 6 basis points, a technical rebound after hitting a historic low of 4%. Japanese Finance Minister Satsuki Katayama urged investors to "remain calm," emphasizing that fiscal policy is "responsible and sustainable."
However, the market did not entirely accept this statement. Analysts at Zheshang Securities pointed out that the temporary stabilization of Japanese bonds eased global long-term debt pressure, but this was more like a rebound after a sharp drop, and the fundamental contradiction of fiscal sustainability remained unresolved.
The US dollar index rebounded slightly, but the strength of the euro and Nordic currencies has not been completely reversed, indicating that market doubts about the credibility of the US dollar are still brewing.
It's worth noting that the Danish pension fund Akademiker Pension has not changed its decision despite Trump's softened stance; the fund still plans to liquidate all its US Treasury holdings by the end of January. This indicates that European institutional investors' skepticism towards US credit has shifted from an emotional level to a structural adjustment.
Gold prices rose and then fell back, but the overall trend remains unchanged.
Gold prices fluctuated wildly on the 21st. They briefly surged above $4,800, hitting a record high, but as Trump withdrew his tariff threats, safe-haven funds quickly withdrew, and gold prices fell back to around $4,650.
COMEX gold futures closed lower, but traded within a range of over $150 throughout the day, indicating extremely sensitive market sentiment.
Despite the short-term pullback, institutions' medium- to long-term bullish outlook on gold remains unchanged. Aakash Doshi, head of gold strategy at State Street Investment Management, stated, "The overall trend remains solid, and the possibility of gold prices breaking through $5,000 per ounce in 2026 is no longer far off."
The Polish central bank has approved a plan to purchase 150 tons of gold, bringing its total reserves to 700 tons. A research report from BOC International states that after a 67% surge last year, gold prices have risen another 6% year-to-date, and demand from central banks and insurance companies is expected to continue supporting prices.
The crypto market continues to be sluggish.
Bitcoin rebounded slightly, buoyed by the recovery in US stocks, but remained range-bound between $89,000 and $90,000, failing to hold above the $90,000 mark. Major cryptocurrencies like Ethereum and Solana saw their losses narrow, but trading volume remained thin.
The weakness in the crypto market exposes a core problem: when US stocks fall due to geopolitical risks, Bitcoin follows suit; when US stocks rebound due to easing risks, Bitcoin's rebound is weak. This pattern of "more declines than rises" renders narratives of "digital gold" and "risk hedging tools" seem weak.
According to Coinglass data, $630 million worth of cryptocurrency futures contracts were liquidated across the network in the past 24 hours, affecting 140,000 individuals. While this is significantly lower than the previous day's figure, the ongoing wave of liquidations indicates that market leverage is still being cleared.
Bitcoin ETF fund flows provide a clearer signal. The previous day, BlackRock's IBIT and Grayscale's GBTC both saw significant outflows, indicating continued caution among institutional investors towards crypto assets.
Today's Focus
Expectations for a Federal Reserve rate cut continue to be revised downwards. Interest rate futures indicate that the market expects only 47 basis points of rate cuts for the entire year of 2026, down from 53 basis points at the end of last year. Most economists expect the Fed to keep rates unchanged this quarter, and may even refrain from cutting rates before Powell's term ends in May.
Trump's Davos speech. Although tariffs on Europe have been lifted, Trump's remarks at Davos are still worth watching. The market needs clearer signals: is the Greenland issue truly over, or just a temporary truce?
Can the Japanese bond market stabilize? Can the technical rebound following the Japanese 40-year government bond yield's first breach of 4% be sustained? If Japanese bonds spiral out of control again, the global long-term bond market will face a new round of shocks.
The financial storm triggered by Greenland temporarily ended with Trump's "tactical retreat." However, the deep-seated problems remain unresolved: the US fiscal deficit continues to expand, doubts about the dollar's credibility are growing in Europe, and the global debt bubble is becoming increasingly fragile in a high-interest-rate environment.
The market shifted from panic to optimism in a single day, but this dramatic fluctuation in sentiment is itself a signal of risk. Behind the TACO market movement lies the continued torment of policy uncertainty on the market.
