Investors have reacted strongly to President Trump’s insistence that he will not abandon his plan to take over Greenland: They hate it. The S&P 500 fell 2% yesterday, even though 81% of the companies Beats fourth-quarter earnings expectations So far. The U.S. dollar fell off a cliff, depreciating nearly 1% against a basket of foreign currencies. U.S. bond prices were slightly weaker. Safe-haven investment gold hits new highs.
In other words, the “Push America” trade is in full effect. S&P futures edged higher this morning, suggesting the bloodletting has been put on hold until traders hear Trump speak at the World Economic Forum in Davos later today. Trump told NewsNation before departing for Switzerland: “we might be able to solve some problems“.
The drama sparked a global debate about ending the United States’ primacy as an investor in holding assets. Analysts and economists are increasingly talking about hedging U.S. risks and allocating capital to more predictable markets. The fact is The S&P 500 underperformed last year Comparisons with Asian and European markets help demonstrate this. There will also be a replay in 2026. The S&P is down 0.71% year to date, while Europe’s STOXX 600 is up 0.69% and South Korea’s KOSPI is up 14%.
“Unless the U.S. moves away from the ‘threat’ of tariffs… America’s so-called ‘primacy’ remains at risk of further unraveling and upending the geopolitical alliances that have underpinned markets in recent years,” Macquarie analysts Thierry Wizman and Gareth Berry wrote in a recent note to clients.
Their argument — perhaps one of the most extreme that Fortune has ever seen in an investment banking research report — is that when the United States experiences major political turmoil, a period of stasis ensues, so investors should start moving money out of the United States:
“This can be traced, for example, to the defeat of the United States in the Vietnam War and the subsequent decline of US hegemony, to the depletion of US gold reserves and the subsequent end of the fixed exchange rate system under the Bretton Woods Agreement in 1944. The subsequent ‘fiat currency’ era is associated with a significant fall in the real value of the dollar from 1971 to 1981 and with periods of inflation and recession throughout the 1970s,” they said.
“We should also be worried about the dollar and its relationship to other currencies. If the dollar’s reserve status does depend on the U.S.’s role in the world – as the guarantor of security and a rules-based order – then the events of the past year, and especially the past three weeks, have created the seeds of a reallocation of the dollar, and a search for alternatives, particularly among reserve managers. So far, allocators have only found comfort in gold, but they may eventually turn to other fiat currencies, too.”
Wall Street saw what this could look like when the Danish Retirement Savings Fund was established. AkademikerPension said yesterday It will sell its US bond stake worth $100 million by the end of the week.
So far, traders are cowering at Trump’s actions. But we haven’t yet seen a wholesale flight of capital from U.S. assets, which could lead to inflation, higher interest rates or trigger a recession. But the fact that Wall Street is talking about it is significant in itself.
Deutsche Bank’s George Saravelos told clients in a note over the weekend: “Europe owns Greenland and it also owns a lot of U.S. Treasury debt. We spent much of last year arguing that, despite its military and economic might, the U.S. has a key weakness: It relies on other countries to pay its bills through large external deficits. Europe, on the other hand, is the U.S.’s biggest lender: European countries own $8 trillion USD exposure to U.S. bonds and stocks is almost double that of other countries. In an environment where the geoeconomic stability of the Western Alliance has been undermined, it is unclear why the Europeans were willing to play this role this time last year and be among the first funds to repatriate funds and reduce their U.S. dollar exposure. With U.S. dollar exposure across Europe remaining high, developments in the past few days have the potential to further encourage U.S. dollar rebalancing.
The note caused controversy internally. Deutsche Bank CEO Christian Sewing had to call US Treasury Secretary Scott Bessent to deny the claims.
The CEO isn’t supportive, but Saravelos’ colleagues may be more sympathetic. Jim Reid and his team religiously send out early morning emails summarizing market movements, but no emails were sent this morning. The bank told wealth“, “Deutsche Bank Research operates independently and therefore the views expressed in individual research reports do not necessarily represent the views of the bank’s management. “
Indeed, the idea that Europe might divest from U.S. assets is now commonplace within investment banks. UBS’s Paul Donovan told clients earlier this week that “the impact of additional tariffs is to increase inflationary pressures in the United States and further erode the dollar’s status as a reserve currency. So far, bond investors do not appear to be taking these threats too seriously.”
This morning he said the most likely scenario was not for investors to sell off Treasuries but simply refuse to buy new debt, thereby reducing the flow of funds the country relies on.
One under-discussed weapon at Europe’s disposal in a tariff war is its anti-coercion tool: its power to ban U.S. services companies from entering the EU
Pantheon Macroeconomics analysts Samuel Tombs and Oliver Allen told clients: “U.S. services exports to the EU will be worth $295B in 2024, equivalent to 0.9% of U.S. GDP, suggesting that if the EU uses this relatively new lever, the harm could be much greater than simply responding with tariffs, although its economy will also be harmed more.”
“In short, no one wins from a new trade war, but the EU has plenty of room to hurt the United States if the situation in Greenland escalates,” they said.
Here’s a snapshot of the market ahead of the opening bell in New York this morning:
- S&P 500 Index Futures are up 0.19% this morning. It closed down 2.06% on the previous trading day.
- Stoxx Europe 600 Index It fell 0.4% in early trading.
- UK FTSE 100 Index Prices were unchanged in early trade.
- Japan’s Nikkei 225 Index down 0.41%.
- China CSI 300 Very flat.
- Korea Composite Stock Price Index up 0.49%.
- Indian NIFTY 50 down 0.3%.
- Bitcoin It dropped to $89,000.