TACO Revisited: US Stocks Rebound, Crypto Market Remains Languid

A single sentence can change the market.

On January 21, while global investors were still digesting the "Greenland crisis" and Danish pension funds' announcement to liquidate U.S. holdings, Trump suddenly declared that new tariffs on eight European countries would be canceled, claiming a "framework" had been reached regarding Greenland—and even the entire Arctic region’s future.

The market immediately shifted from panic to euphoria. The Dow surged 1.21% to 49,077, the S&P 500 rose 1.16% to 6,875, and the Nasdaq gained 1.18% to 23,224. All three major indices fully recovered their previous day's losses.

TACO Returns: Panic-to-Reversal Within 24 Hours

This was a classic "TACO" (Trump Announcement Causes Overreaction) move—Trump triggers an overreaction with one statement, then quickly reverses it with another.

Just 24 hours earlier, markets were grappling with Trump’s threat to impose 10% tariffs on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland. The EU prepared €93 billion in retaliatory measures, Danish pensions announced plans to dump U.S. Treasuries, and global capital rushed out of dollar assets. The S&P 500 plunged 2.06%, its worst drop since October last year.

But ahead of the World Economic Forum in Davos, Trump abruptly softened his stance, withdrawing the tariff threats. While he still emphasized that “Greenland is vital to U.S. national security,” his tone shifted from “not ruling out military action” to resolving matters through a “negotiated framework.”

Wall Street’s interpretation was straightforward: this was a carefully orchestrated pressure tactic—the objective achieved, time to cash in.

“Markets underestimated Trump’s negotiating flexibility,” said Goldman Sachs strategists. “The tariff threats were more about leverage than policy.”

Chip Stocks Rebound Strongly; Treasury Yields Dip Slightly

Individual stock performance confirmed a rebound in risk appetite, led by semiconductor stocks.

Nvidia rose nearly 3%, recovering most of its prior-day loss of over 4%. Chip giants battered during the earlier panic rebounded swiftly as geopolitical tensions eased, signaling institutional confidence in long-term AI computing demand remains intact.

Amgen led the Dow with a near-4% gain. The Magnificent Seven Tech Index rose 0.98%, Tesla climbed nearly 3%, and Google gained close to 2%.

Chinese ADRs also rallied collectively, with Baidu surging over 8% and CenturyLink up nearly 7%. Previously hammered Chinese stocks rebounded rapidly as risk-off sentiment faded.

Bond markets reacted more cautiously. The 10-year Treasury yield dipped one basis point to 4.28%, retreating slightly from the previous day’s 4.29% peak but remaining within the high range seen since September last year.

A more critical signal came from Japan. The 10-year JGB yield fell five basis points to 2.32%, while the 40-year yield dropped six basis points, staging a technical rebound after briefly touching a historic 4%. Japanese Finance Minister Shunichi Kawamura urged investors to “remain calm,” stressing that fiscal policy remains “responsible and sustainable.”

Yet markets remain skeptical. Zhejiang Commercial Securities analysts noted that Japan’s temporary bond stabilization has eased pressure on global long-duration debt, but this appears more like a short-covering bounce—the fundamental issue of fiscal sustainability remains unresolved.

The dollar index edged higher, but gains in the euro and Nordic currencies weren’t fully reversed, indicating ongoing doubts about dollar credibility.

Notably, Danish pension fund AkademikerPension did not reverse its decision despite Trump’s softened tone, maintaining plans to fully exit U.S. Treasuries by end-January. This suggests European institutional skepticism toward U.S. creditworthiness is shifting from emotional reaction to structural reallocation.

Gold Retreats After Spike, But Trend Intact

Gold prices swung wildly on the 21st, briefly breaking above $4,800 to hit a record high before retreating to around $4,650 as safe-haven flows reversed following Trump’s tariff reversal.

COMEX gold futures closed lower, but the intraday range exceeded $150, highlighting extreme market sensitivity.

Despite the pullback, institutional bullishness on gold’s medium- to long-term outlook remains unchanged. Aakash Doshi, Head of Gold Strategy at State Street Global Advisors, said: “The overall trend remains solid. A break above $5,000 per ounce by 2026 is no longer implausible.”

The Polish central bank has approved a plan to purchase 150 tons of gold, increasing total reserves to 700 tons. BOC International Research notes that after gold’s 67% surge last year, prices are already up another 6% year-to-date, with continued buying from central banks and insurers expected to support further gains.

Crypto Markets Remain Weak

Bitcoin edged up slightly amid the broader equity rally but remained stuck in the $89,000–$90,000 range, failing to reclaim the $90,000 level. Ethereum, Solana, and other major coins narrowed their losses, yet trading volume stayed thin.

Crypto’s weakness reveals a core problem: when equities fall on geopolitical fears, crypto falls too; when equities rebound on de-escalation, crypto fails to follow meaningfully. This “down more, up less” pattern undermines narratives of crypto as “digital gold” or a reliable hedge.

Coinglass data shows $630 million in total liquidations across crypto perpetual contracts in 24 hours, affecting 140,000 traders. Though far below the previous day’s levels, persistent liquidations indicate leveraged positions are still being unwound.

Bitcoin ETF flows offer a clearer signal. The prior day saw significant outflows from BlackRock’s IBIT and Grayscale’s GBTC, reflecting sustained institutional caution toward crypto assets.

Today’s Watchlist

Fed rate cut expectations continue to decline. Rate futures now price in just 47 basis points of easing for all of 2026, down from 53 bps at year-end. Most economists expect the Fed to hold rates steady this quarter—and possibly refrain from cutting until after Chair Powell’s term ends in May.

Trump’s Davos speech. Though European tariffs were scrapped, his remarks at Davos will still be closely watched. The market needs clarity: Is the Greenland issue truly settled, or merely paused?

Can Japanese bonds stabilize? Will the technical rebound following the first-ever breach of 4% on 40-year JGB yields hold? If Japan’s bond market spirals again, global long-duration debt faces fresh turmoil.

The financial storm triggered by Greenland’s geopolitical flare-up has ended Act One with Trump’s tactical retreat—for now. But deeper tensions remain unresolved: America’s widening fiscal deficit, growing European skepticism toward dollar credibility, and an increasingly fragile global debt bubble under prolonged high interest rates.

The market flipped from fear to optimism in a single day, but such violent swings themselves are warning signs. Behind every TACO rally lies the relentless toll of policy uncertainty on investor confidence.