Trump’s Greenland Tariff Threats Send US Stocks, Bonds Falling

Key Takeaways

• US stocks fell Tuesday, led by the tech sector, as President Donald Trump escalated his tariff threats over opposition to a US takeover of Greenland.
• Long-term US Treasury bond prices fell, lifting yields, while the US dollar weakened.
• Gold and silver hit record highs as investors turned to precious metals as a safe haven.

President Donald Trump’s escalating trade war with Europe over his plans for a US takeover of Greenland sent US stocks and bonds falling Tuesday.

The Morningstar US Market Index fell 2.02% Tuesday , while the S&P 500 lost 2.06% and the Nasdaq was down 2.39%. European and Asian stock markets also closed lower on Tuesday. Tuesday’s decline was the biggest drop in the Morningstar US Market index since Oct. 10, when stocks fell 2.74%.

Markets Brief: Key Earnings on Deck This Week, “Destructive” Tariff Threats, Plus Watching Signs of Stock Rotation

“After a strong start to the New Year, the last thing equity markets needed was an act of self-harm by the US administration,” says Michael Field, chief European markets strategist at Morningstar.

Most sectors an were down on Tuesday, with tech stocks posting the largest losses. The Morningstar US Technology Index fell 2.89% and the Morningstar US Consumer Cyclical Index was down 2.71%.

Energy stocks and consumer defensive stocks held up better on Tuesday. The Morningstar US Energy Sector Capped Index was down 0.29%, while the Morningstar US Consumer Defensive Index was little changed with a 0.09% gain.

Within the Morningstar Style Box, large growth stocks took the biggest hit. The Morningstar US Large Growth Index fell 2.15% Tuesday.

“News over the weekend and Trump lashing out at leaders of eight European countries contributed to a severe selloff in the stock and bond markets,” says Hank Smith, head of investment strategy at Haverford Trust. “I do think that if the markets (particularly the bond market) continue to act this way, and with interest rates rising, there’s every reason to think Trump will shift gears and back off.”

In Europe, the Morningstar Nordic Index fell Tuesday, extending losses to 3.1% for the week. The Morningstar Europe Index was down 2.5%, while the Morningstar UK Index declined 1.4%.

Gold and Silver Extend Gains as US Dollar Weakens

Commodity markets reflected the broader risk-averse mood, with rising concerns over a potential trade war between the US and the European Union driving demand for safe-haven assets. Gold and silver traded to new record highs, closing at around $4,765 and $94.45 per ounce, respectively.

At the same time, the US dollar continued to weaken, providing additional support to precious metals. The euro was quoted at $1.17 Tuesday against $1.16 on Monday.

Countering the trend among safe-haven assets, long-term US Treasury prices fell, with the yield on the US Treasury 10-year note rising to 4.3% from 4.24% on Friday.

Trump’s New Tariff Threats

The losses came after President Trump said the US would impose new tariffs on imports from European countries unless they acquiesce to a change in control of Greenland. Trump said that Denmark, which has sovereignty over the island, will face a 10% tariff starting Feb. 1. The same levy would apply to Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland, with the rate set to rise to 25% in June if no agreement is reached.

Trump further escalated his rhetoric on Tuesday, threatening 200% tariffs on French wine and Champagne after reports that French President Emmanuel Macron would not join his proposed Gaza Peace Board. He also lashed out at the UK over plans to hand sovereignty of the Chagos Islands, which host a UK-US military base, to Mauritius, calling the move an “act of great stupidity” and citing it as further justification for acquiring Greenland.

“Markets have taken the prudent approach to the news and retreated, but this is not some well-planned economic land grab. Rather, it’s a wild response to Europe’s pushback on Greenland,” says Morningstar’s Field.

Trump’s threats come as the US Supreme Court is considering the legality of his use of tariffs under the International Emergency Economic Powers Act.

As investors worldwide assess how tensions between the US and Europe may unfold, MUFG senior economist Henry Cook says the last year has taught markets not to overreact to Trump’s threats. He highlights the legal challenges: “As ever with Trump, the details are thin on the ground. It’s not clear what legal framework would be used, nor how this would relate to the existing US reciprocal tariffs.”

Haverford’s Smith says that so far this year, investors have taken other geopolitical events with a grain of salt. These include the US ousting of Venezuelan President Nicolás Maduro, the Department of Justice’s investigation into Federal Reserve Chair Jerome Powell, and President Trump’s proposed credit card interest rate cap. “Clearly, this was different, and an instant market reaction put a damper on all the gains so far in 2026,” Smith says.

Smith expects another few days of a stock market downturn, but he doubts the trend will continue into February, citing the administration’s tendency to back away from similar tariff threats. “Look at the past year,” he says. “How many times has Trump made proclamations, only to turn around and declare victory when there was no victory, or to completely change his mind? Why would now be any different?”