Without resorting to force or raising taxes, Trump's "Greenland Taco" initiative saved the US stock market.

Author: Zhou Ailin , Tencent Finance

Edited by: Liu Peng

U.S. stocks rebounded sharply at the close of trading in the early hours of January 22nd, Beijing time. The previous day, U.S. stocks experienced their biggest single-day drop since Emancipation Day, but President Trump's speech in Davos regarding the Greenland crisis reassured the market.

At the close of trading, the S&P 500 rose 78.76 points, or 1.16%, to 6875.62; the Dow Jones Industrial Average rose 588.64 points, or 1.21%, to 49077.23; and the Nasdaq Composite rose 270.502 points, or 1.18%, to 23224.825. Chinese concept stocks surged, with the Nasdaq Golden Dragon China Index rising 2.21% to 7776.15. The China Internet ETF (KWEB) rose 1.74%. Among popular Chinese concept stocks, Baidu initially rose 8%, 21Vianet rose 7.4%, GDS Holdings rose 6.1%, Kingsoft Cloud rose 4.6%, WeRide rose 4.3%, Alibaba rose 3.9%, Yum China rose 2.7%, and Pinduoduo rose 1.4%.

Has the alarm bells for the Greenland crisis been completely lifted? How will the global market react next?

1. Trump changes his tune to reassure the market.

In his keynote address at the World Economic Forum in Davos, Switzerland, Trump called for “immediate negotiations” on acquiring Greenland, a territory of Denmark, and stated that only the United States could guarantee its security.

However, he also hinted that he would not use force to control the island . "Unless I decide to use excessive force, we may get nothing, and frankly, we would be unstoppable, but I will not do that."

On Wednesday, Trump also announced a framework agreement with NATO for cooperation on Greenland, retracting his tariff threats against eight European countries. According to the New York Times, citing three senior officials familiar with the discussions, the announcement came after a NATO meeting on Wednesday where top military officials from member states discussed a compromise: Denmark would cede sovereignty over a small tract of land in Greenland to the United States for the construction of a military base. These officials stated that this concept had been advocated by NATO Secretary General Rutte. Two of the officials at the meeting compared it to the British military bases in Cyprus—which are considered British territory. Officials were unsure whether this concept was part of the framework agreement announced by Trump. Trump did not immediately disclose specific details of the framework.

Despite a brief sell-off of US assets, Tencent News's "Deep Dive" previously learned that the key lies in observing the sustainability of this volatility. Traders are still seeking opportunities to buy on dips, believing that Trump's actions are more like a negotiating tactic—a process that may be uncomfortable, but his style is, "I'll come out with a big hammer first, and then we'll negotiate."

Earlier this week, Trump proposed imposing a 10% tariff on imports from eight European countries (Germany, France, the UK, the Netherlands, Denmark, Norway, Sweden, and Finland) starting February 1, and threatened to raise the tariff to 25% on June 1 if no agreement is reached on his intention to acquire Greenland (implementation remains highly uncertain).

2. US stocks stop bleeding

The reaction of US stocks has already reflected the change in market sentiment. Previously, Tencent News' "Deep Dive" also learned from traders that rather than Tuesday's sharp drop stemming from extreme market concerns about the Greenland crisis, it was more accurately described as a position-driven shock amplified by rising global yields.

In addition to geopolitical risks, the simultaneous surge in yields on US and Japanese government bonds is a fatal blow to the stock market. Moreover, investors' long positions and optimism are currently at high levels, making them more vulnerable to external shocks.

On January 20, the yield on 40-year Japanese government bonds broke through 4% for the first time in history, while the yields on 20-year and 30-year bonds surged by more than 20 basis points in a single day. US Treasury Secretary Bessenter blamed Japan for the surge in US Treasury yields, possibly because Prime Minister Sanae Takaichi's campaign plan to cut food taxes without specifying the source of funding led to an overnight sell-off of Japanese bonds. On the same day, the yield on 10-year US Treasury bonds climbed 8 basis points to 4.293%.

Tim Sun, a senior researcher at HashKey Group , believes the underlying logic is that, apart from the US, the volatility in the Japanese government bond market is far more dangerous and systemically destructive than bond fluctuations in other countries. Due to Japan's long-term low interest rates, it has become a major provider of liquidity to global financial markets, particularly the US and European markets. Therefore, once bond yields rise, the attractiveness of overseas assets for Japanese investors will decrease, potentially triggering a return of funds to the domestic market and a sell-off of US and European bonds. This would further increase borrowing costs in global financial markets, impacting risky assets and, potentially, spreading to the real economy, where Japan is a central hub in the global supply chain.

Goldman Sachs research suggests that when the yield on the 10-year U.S. Treasury note fluctuates by two standard deviations within a month (currently equivalent to 50 basis points), historically, a correction has occurred in the U.S. stock market (rising interest rates mean that stock valuations are compressed).

However, market risk sentiment is expected to continue to ease . Traders generally believe that although previous positions were overextended and market sentiment was extremely bullish, potentially creating opportunities for significant market volatility due to unexpected news, current fund flows still provide support for US stocks. Therefore, the most likely short-term scenario is a slight sell-off (Tuesday) followed by a rebound (Wednesday). The key is that inflows into the stock market have remained strong (the rotation of money market funds into the stock market is finally showing), companies are entering buyback windows, and capital market activity is picking up.

Coincidentally, Tony Pasquariello, head of Goldman Sachs ' global hedge fund business, noted in his macro notes on Wednesday that the world seems to be becoming increasingly volatile, and further risk shifts in the short term would not be surprising . However, a more important factor should not be overlooked: the strong momentum of the US economy and the Federal Reserve's increased liquidity injections.

"In summary, the U.S. economy is accelerating. Several data points last week were particularly noteworthy, especially the rise in the ISM Services Index (to 54.4, the highest in over a year) and the decline in initial jobless claims (198,000, a remarkably healthy level). Meanwhile, various housing activity indicators also showed signs of stabilization. Taken together, our current U.S. activity index has risen to its highest level since the end of 2024," he said.

3. Gold's upward trend is unlikely to reverse.

Due to easing geopolitical risks, silver prices plummeted, causing a rapid short-term decline in gold prices. However, gold prices subsequently rebounded quickly. As of 7:00 AM Beijing time on January 22, the international spot gold price was $4831.45 per ounce, representing a year-to-date increase of over 11% and a one-year increase of approximately 70%.

The main reasons for the continued rise in gold prices include: gold is linked to the real interest rate of the US dollar, showing a negative correlation. The overall decline in the real interest rate of the US dollar provides support for gold; at the same time, gold is also a safe-haven asset, a hedge against concerns about the independence of the Federal Reserve, and a hedge against the "dollar specialization" rhetoric of de-dollarization. This demand will not change abruptly due to the temporary easing of the Greenland crisis.

Zhu Liang, Deputy General Manager and Chief Investment Officer of AllianceBernstein China, mentioned that as of the end of the third quarter of 2025, the largest demand for gold was from ETF investment, accounting for about 43% of the total demand; followed by jewelry demand, accounting for about 33%, although jewelry demand also represents some investment demand; thirdly, reserve demand from central banks and institutions such as the Federal Reserve, accounting for about 17%; and finally, industrial demand, accounting for a very small proportion of about 7%.

Adam Berger, multi-asset strategist at Wellington Investment Management, believes that risk appetite and risk aversion are not necessarily mutually exclusive. Stocks can also perform well during periods of rising gold prices.

Wall Street's prediction that gold prices would hit $5,000 in 2026 appears to be coming true ahead of schedule. UBS remains bullish on gold, raising its price targets for March, June, and September 2026 from $4,500 to $5,000 per ounce, and expects a slight pullback to $4,800 by the end of 2026 (after the US midterm elections). If political or financial risks escalate further, gold prices could potentially rise to $5,400 (previously $4,900). Gold remains a highly attractive asset and an important risk hedging tool in investment portfolios.