Bloomberg
(Bloomberg) — For weeks on Wall Street, markets were unusually subdued as President Donald Trump threatened the post-war order by asserting US dominance of the Western hemisphere.
But with his drive to take over Greenland throwing the European and American alliance in disarray — and Japanese bonds plunging on concerns over the country’s finances — the calm abruptly snapped.
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As stock markets opened on Tuesday, the “Sell America” trade came back in full force as Treasuries tumbled, driving up yields, and the dollar slid. The S&P 500 dropped over 2%, erasing all of this year’s gains with the steepest decline in over three months, and the VIX Index, a measure of expected stock swings, hit the highest since November. Gold — a go-to haven — rose to a record of over $4,700 an ounce.
The moves show that investors’ previous willingness to shrug off Trump’s actions — including the White House’s capture of Venezuela’s leader, its threats to nearby countries, and renewed attacks on the Federal Reserve — is beginning to erode.
Trump’s demand for US control over Greenland is stoking investor anxieties about potential worst-case scenarios, including a rupture in the NATO alliance, a full-blown trade war, or European steps to foment market turbulence as a way to force the Trump administration to back down.
“Our bet is that in the base case the severity will ultimately still be contained as investors bet on some version of a compromise,” wrote Krishna Guha, head of central bank strategy at Evercore ISI. “But the impacts would be very severe if this goes off the rails, and there will be long-lasting implications, including for the dollar.”
Volatility across US bonds, equities and the dollar over the past month had sunk to the lowest since at least 1990.
That’s in part because traders have largely learned to tune out Trump’s daily salvos, wagering that the worst of his threats won’t come to pass. The tactic, honed after the April market meltdown drove him to pause his tariffs, became known as the TACO trade — with investors seeing selloffs as a chance to buy.
Yet Tuesday’s stock selloff extended as the session wore on, with the S&P 500 slumping to fresh lows as Trump appeared at the White House podium and delivered a meandering recitation of his first-year accomplishments. In the US Treasuries market, longer-dated bonds were hit hardest, undermining Trump’s goal of seeing lower interest rates, as 30-year yields climbed 8 basis points to 4.92%, not far from the peaks seen in late 2023.
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