Stocks took a hit on Wall Street Tuesday afternoon following U.S. President Donald Trump’s threat to impose new tariffs on eight NATO members in the midst of escalating tensions over his pursuit to assert American dominance over Greenland. The S&P 500 experienced a significant 2.1% decline, marking its largest drop since October. This reaction from U.S. markets came after they remained closed on Monday for Martin Luther King Jr. Day.
The Dow Jones Industrial Average plummeted by 877 points, equivalent to a 1.8% decrease by 2:46 p.m. ET, while the Nasdaq composite also dipped by 2.4%. Concurrently, European and Asian markets witnessed declines as well. The primary Canadian stock index, S&P/TSX composite index, recorded a substantial drop of 340.68 points, landing at 32,750.28.
The downturn on Wall Street was widespread and particularly impacted technology stocks, which hold significant sway over the market due to their substantial values. Retailers, banks, and industrial companies also experienced sharp declines. Notable companies like Nvidia, Amazon, JPMorgan Chase, and Caterpillar saw declines ranging from 2.9% to 3.7%.
Amidst the market turmoil, companies focusing on consumer staples fared relatively better. Colgate-Palmolive observed a 1.5% increase, while Campbell’s saw a rise of 1.7%. Notably, the price of U.S. crude oil climbed by 1.5% to reach $60.34 US per barrel, and the international standard, Brent crude, also rose by 1.3% to $64.76 US.
President Trump’s tariff ultimatum involved a proposed 10% import tax on products from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland starting in February. This announcement triggered a negative response in European markets, leading to higher Treasury yields in the bond market.
The annual collective imports from European Union nations exceed those from the top two individual importers into the U.S., Mexico, and China. Prior to the U.S. market opening, markets in major European cities like Paris, Frankfurt, and London all experienced declines of over one percent, positioning them for a second consecutive day of losses.
The escalating tensions prompted a surge in demand for safe-haven assets like silver and gold, with gold surging by 3.7% and silver by 6.9%. This geopolitical turmoil had a dampening effect on the recent rally in bitcoin, which retraced from above $96,000 US to approximately $89,300.
In the bond market, Treasury yields displayed mixed movements, with the 10-year Treasury yield rising to 4.29% and the two-year Treasury yield slipping to 3.59%. Trump’s aggressive stance on Greenland was directly linked to his dissatisfaction over not receiving the Nobel Peace Prize last year, as conveyed in a text message to Norway’s prime minister, Jonas Gahr Støre.
The ongoing tensions between the U.S. and its allies regarding Greenland’s control escalated, leading to widespread outrage across Europe and sparking diplomatic initiatives to explore potential countermeasures, including retaliatory tariffs and the prospective employment of the European Union’s anti-coercion instrument. This trade and political conflict with Europe coincided with the World Economic Forum annual meeting in Davos, Switzerland.
Analysts anticipate that Trump’s tariff threats could impact the ongoing conference but suggest that negotiations and tensions will likely ease over time. The looming threat of tariffs has created uncertainty in the global economy since 2024, with Trump’s policy involving a mix of tariff threats, implementation, delays, and cancellations, adding pressure on businesses and complicating future planning.
The potential inflationary impact of tariffs could further complicate the Federal Reserve’s efforts, as it aims to maintain economic stability amidst rising inflation rates that surpass the target of two percent. The Fed had cut interest rates three times in late 2025 to bolster the weakening job market but now faces challenges due to the tariff uncertainties.