By Saqib Iqbal Ahmed and Lewis Krauskopf
NEW YORK, Jan 21 (Reuters) – As President Donald Trump kicks off the second year of his second term in office, the geopolitical- and tariff-related volatility that characterized his return to power has resurfaced to shake markets. Investors who have been conditioned to asset prices swiftly rebounding are worried that this time, there could be more lasting damage.
Volatility measures across asset classes rose while stocks, U.S. long-dated Treasuries, and the U.S. dollar sold off on Tuesday, a day after Trump threatened to rekindle a trade war with Europe over the U.S. administration’s aim to take over Greenland, threatening to blow apart the political and military alliance that has underpinned Western security for decades.
The threats have revived talk of the Sell America trade that emerged following last year’s “Liberation Day” tariff announcement in April, with investors shying away from U.S. assets.
“Global investors are taking these threats seriously,” Jack Ablin, founding partner and chief investment strategist at Cresset Capital.
“I would have thought after Liberation Day that a lot of investors would fade the selloff and try to pick a bottom, but that doesn’t appear to be happening this time around,” he said.
For Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia, the market action was reminiscent of last year.
“(The) market peaked in late January, early February. Then as the tariff news hit the headlines, the market had a pretty good correction,” Tuz said.
“I hope it doesn’t turn out to be as dramatic,” said Tuz.
While Trump has shown flexibility on tariffs when markets come under severe pressure, investors worry it might take significantly more volatility before the situation over Greenland is resolved. Indeed, the selloff concerned investors because it was spread across multiple assets.
“A day like today, where the bond yields are up, equities have fallen and the dollar sells off … causes people to rethink some of their assumptions,” said Lauren Goodwin, head of the global market strategy team at New York Life Investments.
LONG WAY DOWN
With the S&P 500 slumping 2.1% on Tuesday, its biggest one-day drop in more than three months, dip-buyers appeared absent.
Three straight years of double-digit returns have pushed market valuations to lofty heights, leaving stocks vulnerable to bad news.
“This is a time where everything is priced near perfection and it’s a time where you can take out some insurance or think about some defensive options just in case another geopolitical event hits the headlines,” Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said.
Still, few investors were ready to back away from U.S. stocks in a big way.
“At the margin, I think it makes sense to diversify assets outside the U.S., but I wouldn’t give up on the U.S. at all, given the very strong profitability of U.S. companies,” said Michael Rosen, chief investment officer at Angeles Investments.
With companies reporting fourth-quarter results over the coming weeks, S&P 500 earnings are expected to have climbed 13.3% in 2025 and to rise by another 15.5% in 2026, according to LSEG IBES.
Still, should foreign investors shed U.S. stocks, it could weigh on the market.
“The fundamental story is a good one, but there’s a supply and demand aspect, and that is some of the foreign flows might not come into the U.S. and so, as a result, this could dampen returns,” Anne Walsh, chief investment officer of Guggenheim Partners Investment Management, told the Reuters Global Markets Forum on the sidelines of the World Economic Forum annual meeting in Davos, Switzerland.
For now, most investors were biding their time.
“If this does continue to devolve, then all of a sudden you’ve got yourself an issue, but we’re just not there yet,” said Alex Morris, CEO and CIO of F/m Investments.
TACO AGAIN?
One reason investors are not quite bolting from stocks is the possibility of Trump negotiating back from his opening position.
“I definitely think traders are worried about going all in on a down trade because of the potential for a ‘TACO,'” said Tom Graff, chief investment officer at Facet in Phoenix, Maryland, referring to the Wall Street acronym for “Trump Always Chickens Out” – what some say is Trump’s tendency to amp up threats only to later back down.
With a “very large” non-dollar allocation and significant underweighting on longer-term Treasury bonds, Graff did not see an immediate need to react, he said.
The White House did not immediately respond to a request for comment.
Any pronounced pullback in the market could also draw dip-buyers, investors said.
“Is this the next TACO trade where he (Trump) stirs things up and then he backs off? Certainly you’re going to have some number of investors out there who might view it that way,” said Jim Carroll, senior wealth adviser and portfolio manager at Ballast Rock Private Wealth in Charleston, South Carolina.
(Reporting by Saqib Iqbal Ahmed and Lewis Krauskopf; Additional reporting by Laura Matthews and Suzanne McGee in New York, Divya Chowdhury in Davos; Editing by Megan Davies and Matthew Lewis)
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