New York stocks collapsed under the "Greenland shock." After U.S. President Donald Trump warned of a tariff bomb on European countries opposing the U.S. purchase of Greenland, investor sentiment froze rapidly on fears of instability.
Going beyond a simple trade dispute, even a "Sell America" trend of dumping U.S. assets was sensed, sending the fear gauge (VIX) to a record high in two months. Government Bonds yields jumped (bond prices fell), and tech stocks plunged. Money pulled from equities rushed into gold, a safe asset.
On the 20th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 48,488.59, a plunge of 870.74 points (1.76%) from the previous session. The large-cap-focused Standard & Poor's (S&P) 500 fell 143.15 points (2.06%) to 6,796.86. It was the biggest drop since Oct. last year. The tech-heavy Nasdaq composite also sank 561.07 points (2.39%) to 22,954.32 at the close.
From the opening, Wall Street was swayed by President Trump's remarks. Ahead of attending the Davos forum in Switzerland, Trump threatened eight NATO (North Atlantic Treaty Organization) member states opposing the purchase of Greenland, saying, "I will raise the tariff from 10% to 25% until the transaction is concluded." He also turned his aim at French President Emmanuel Macron, warning, "I will impose a 200% tariff on French wine and champagne," sending fears of a trade war sweeping the market.
Experts cautioned that the situation could spill over into a "Capital War," beyond simple economic calculus. Ray Dalio, founder of the world's largest hedge fund Bridgewater Associates, said in a CNBC interview, "Behind trade deficits and trade wars are capital and capital wars," adding, "If conflict intensifies, the propensity to buy U.S. debt (Government Bonds) could decline."
Signs of an exodus by "big hands" have indeed appeared. Akademiker Pension, a Danish pension fund, said it would sell its entire $100 million (about 148 billion won) position in U.S. Government Bonds, citing "America's worsening fiscal position and liability burden."
In the market, this was interpreted as an early sign that Europe's backlash against Trump's attempt to buy Greenland could lead to a "sell-off of U.S. assets." Krishna Guha at Evercore said, "Amid broad-based global risk aversion, a 'Sell America' phenomenon is reemerging."
As uncertainty grew, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," surged 29.82% from the previous session to 20.59. It was the first time VIX topped 20 since Nov. last year.
Yields on U.S. Government Bonds also jumped to the highest level in about six months. The 10-year U.S. Government Bonds yield climbed 0.070 percentage point from the previous day to 4.296% annually, the highest since Aug. last year. Experts said rising Government Bonds yields discount future revenue values and act as a headwind for tech and growth stocks. Brad Long, chief investment officer (CIO) at Wellsfier, noted, "Weaponizing the tariff to achieve political rather than economic objectives is a new negative factor."
The "Magnificent 7 (M7)" stocks that have led Wall Street's rally all fell. Nvidia, Alphabet (Google's parent), and Amazon slid more than 2%. Microsoft (MS) and Apple also fell more than 1%. Concerns that the Trump administration's tariff policy could disrupt global supply chains and raise expense burdens for big tech corporations spurred selling.
By contrast, defense stocks and safe assets that shine in times of war or crisis rose. Shares of defense contractors such as Lockheed Martin surged. Walmart, a consumer staple, climbed nearly 1% to a record high, underscoring its profile as a defensive stock.
Gold futures, a representative safe asset, jumped 3.65% to a record high of $4,763.30 per ounce. Silver futures also soared 6.9% in a day, breaking above $94 per ounce.
Major corporations saw mixed results on earnings. Netflix, which released results after the close, reported profit slightly above market expectations and said it had secured 325 million global subscribers. But it was swept up in the intraday weakness in tech stocks.
For the time being, the market is expected to keep a close eye on President Trump's moves at the Davos forum. In Davos, Trump is set to meet European leaders to discuss his "territorial ambitions (Greenland)" and trade relations. A special address is scheduled for 10:30 p.m. on the 21st in Korea time.
Matt Maley, a strategist at Miller Tabak, said, "The policy backlash from the administration over Greenland is substantial," adding, "It is quickly destabilizing the geopolitical environment, even raising doubts about NATO's future."