All three major US stock indexes plunged on Tuesday, marking their largest single-day fall in three months, as President Donald Trump’s standoff with European leaders over Greenland intensified. The S&P 500 dropped more than 1 per cent at the start of trading, marking its biggest morning decline since April, when Trump first announced tariffs on nearly all trading partners.
The selloff affected not just stocks, but also debt markets and even Bitcoin, which fell more than 3 per cent despite usually being a safe bet when traditional markets wobble. Gold, on the other hand, reached new record highs.
US stocks fall as Trump escalates Greenland tariff threats
The drop came after Trump warned of higher tariffs on European allies if they did not support his plan for the US to take control of Greenland. Investors reacted, sending markets lower and increasing uncertainty about the US economy.
The S&P 500 lost 143.15 points, or 2.06 percent, closing at 6,796.86. The Nasdaq Composite fell 561.07 points, or 2.39 percent, to 22,954.32. The Dow Jones Industrial Average dropped 870.74 points, or 1.76 percent, ending at 48,488.59, according to Reuters. Both the S&P 500 and Nasdaq fell below their 50-day moving averages.
Dollar and Government bonds lose value
Typically, when geopolitical tensions hit, investors move money into safe US assets like the dollar or government bonds. But this time, even those assets lost value, signalling a “sell America” trend, according to the NYT.
The dollar index, which compares the US dollar to a basket of major currencies, fell 0.8 percent. The dollar weakened against all 10 major currencies, including the euro, British pound, and Norwegian krone.
Meanwhile, the yield on the 10-year U.S. government bond rose to 4.3 percent, its sharpest increase so far this year. Because bond prices and yields move in opposite directions, this means bond values dropped.
Greenland Tariffs spark uncertainty
Tuesday was the first chance for US investors to react to Trump’s weekend comments due to the Martin Luther King Jr. holiday. Trump announced new import tariffs:
- An additional 10% on goods from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and Great Britain starting February 1.
- These tariffs would rise to 25% on June 1 and remain until the US secures Greenland.
Despite the market turbulence, the US economy remains healthy. Investors are watching upcoming data, including:
- Third-quarter US GDP update
- January PMI readings
- Personal Consumption Expenditures report (the Federal Reserve’s preferred inflation gauge)
Trading activity surges
Trading volumes on Tuesday reached around 20.6 billion shares, up from the 20-day average of 17.01 billion, according to Reuters. Despite the nervousness, some experts warned against overreacting. Jamie Cox of Harris Financial Group told Reuters, “I’m not at the point yet where I’d say Greenland and the tariff threats will cause a major correction. A 3-5% drop this week would surprise me.”