Markets Stabilize as Trump Softens Greenland Tone at Davos
Stocks attempt recovery after Tuesday's 2% plunge as president signals willingness to negotiate. Futures flat ahead of earnings wave.
The market found its footing Wednesday, at least temporarily.
US futures traded roughly flat overnight after Tuesday's bloodbath, with the S&P 500, Nasdaq 100, and Dow all hovering within 0.2% of unchanged. That's a sharp contrast to the 2% plunge that marked Wall Street's worst session since October.
The catalyst for the pause: President Trump struck a more conciliatory tone on Greenland during his appearance at the World Economic Forum in Davos, suggesting a negotiated deal remains possible.
"I think we'll get there," Trump told reporters when asked about the prospect of acquiring the Arctic territory. "NATO will be happy. Everyone will be happy."
That's different from Sunday's ultimatum threatening escalating tariffs on eight European allies unless they agreed to a "complete and total purchase."
The Damage Assessment
Tuesday's selloff was broad and deep.
The S&P 500 dropped 2.1%, the Nasdaq Composite fell 2.4%, and the Dow shed 875 points—1.8% in a single session. The VIX spiked to 21, crossing the threshold that typically signals elevated anxiety.
Big tech led losses. Nvidia fell 4.4%, Oracle dropped 5.8%, and Broadcom shed 5.4%. The tariff threat compounds existing uncertainty about chip export restrictions and AI infrastructure spending.
European markets suffered even more, with the Stoxx 600 posting its worst day since the banking crisis of 2023. German automakers BMW and Volkswagen each lost more than 3%.
Why the Softer Tone Matters
Trump's Davos comments don't resolve the underlying dispute—Greenland isn't suddenly for sale—but they signal the administration may be testing negotiating leverage rather than committing to a trade war.
The tariffs announced Saturday remain scheduled to take effect February 1 unless rolled back. But the 10% starting rate and June 1 escalation to 25% give both sides months to maneuver.
European leaders rejected the premise entirely. Danish Foreign Minister Lars Lokke Rasmussen reiterated that "Greenland is not for sale." German Vice Chancellor Lars Klingbeil called the tariff threats "blackmail."
The question is whether rhetoric translates to escalation or backroom negotiation. Markets, for now, are betting on the latter.
Earnings Season Context
Wednesday's session brings another wave of corporate reports that could shift focus away from geopolitics.
Johnson & Johnson reported this morning, beating estimates with $24.6 billion in Q4 revenue and raising 2026 guidance to $100 billion. Charles Schwab, Travelers, and Halliburton are also on deck.
The numbers so far suggest corporate America is executing despite macro noise. Roughly 81% of S&P 500 companies that have reported beat earnings estimates, according to Bloomberg data. But the market's reaction to those beats has been historically poor—stocks are trailing the index by an average of 1.1 percentage points post-earnings.
That dynamic reflects elevated expectations and a market that already priced in strong results. Beating isn't enough; you need to beat and raise.
Treasury Yields Remain Elevated
The bond market adds another layer of concern.
The 10-year Treasury yield held above 4.8% Wednesday morning, near its highest level since 2023. A report that Danish pension funds plan to reduce US Treasury holdings added to selling pressure earlier in the week.
Higher yields create headwinds for equity valuations, particularly for growth stocks priced on long-duration cash flows. The correlation between yields and tech stocks has strengthened since the Fed signaled fewer rate cuts for 2026.
Fed Chair Powell's scheduled remarks Thursday will be closely watched for any signal that monetary policy might respond to tariff-induced inflation risks.
Trading Setup
For active traders, the volatility creates opportunity and risk in equal measure.
The VIX at 21 suggests options premiums are elevated, favoring sellers over buyers. Put-call ratios jumped Tuesday as traders scrambled for downside protection—a potential contrarian signal if geopolitical fears prove overblown.
Support levels to watch: the S&P 500 held its 50-day moving average at 5,890 on Tuesday's close. A break below that opens the door to the 100-day average around 5,720.
Resistance comes at the prior high of 6,090. Getting back there requires either tariff de-escalation or strong enough earnings to override macro concerns.
The smart play may be patience. Let the Davos headlines play out and see whether Tuesday's selloff was an overreaction or the start of something larger.