US Stocks Rebound as Trump Walks Back EU Retaliation Threat
Markets experience whiplash as comments from Davos first sink and then buoy sentiment, with the S&P 500 erasing over half its initial losses.
U.S. stocks staged a dramatic comeback on Thursday, reversing sharp morning losses after former President Donald Trump appeared to soften his stance on trade with Europe, capping a volatile session driven by geopolitical posturing at the World Economic Forum.
The S&P 500 recovered more than half of its earlier 2.1% plunge, finishing the day with its largest gain in two months. The Dow Jones Industrial Average climbed 1.2%, and the Nasdaq Composite registered a similar gain as markets pivoted from risk-off panic to relief.
The session began on a deeply bearish note after Mr. Trump, speaking from Davos, threatened "big retaliation" should European nations sell off their holdings of U.S. assets. The comments introduced fresh chaos into transatlantic trade relations, dashing earlier optimism that tensions were cooling.
However, the negative sentiment was short-lived. Following a meeting with NATO Secretary General Mark Rutte later in the day, Trump de-escalated his rhetoric, walking back the tariff threats. The reversal sent an immediate wave of relief through global markets.
European equities, which had been under pressure, rallied strongly on the news. The FTSE 100 in London gained 0.8%, while Germany’s Dax and France’s Cac 40 both surged 1.4%, according to market reports.
Some analysts dubbed the reversal a return of the "Trump Always Chickens Out" (TACO) trade, a term reflecting a market pattern of discounting the former president's more aggressive threats. As noted by The Guardian, the market's quick rebound suggests investors are growing accustomed to, though still wary of, the erratic nature of trade policy pronouncements.
The swift move away from safe-haven assets was evident across the board. The U.S. dollar strengthened as immediate geopolitical risk faded. Gold prices, which had spiked on the initial threat, slipped back down. Meanwhile, U.S. Treasury yields, which fall as bond prices rise during a flight to safety, ticked lower as investor anxiety subsided.
While the market ultimately ended the day in positive territory, the session serves as a stark reminder of how sensitive investor sentiment remains to geopolitical headlines. The whiplash between a potential trade-war escalation and a sudden de-escalation highlights an unpredictable policy environment that continues to keep traders on edge.