US Triple-Asset Rout Deepens as Greenland Tensions Shatter Market Calm, Will It Go On?

TradingKey - On Tuesday (January 20), the U.S. market suffered a 'triple sell-off' in stocks, bonds, and the currency. All three major U.S. stock indices fell, wiping out their year-to-date gains, with the Nasdaq Composite leading the decline with a 2.39% drop; the VIX, a measure of market fear, broke above the 20 level for the first time since last November.

The 30-year Treasury yield briefly surged to 4.94%, while the 10-year yield rose 7 basis points to 4.30%, both reaching their highest levels since September 3 of last year. Bond prices move inversely to yields, signifying a sharp decline in Treasuries. The U.S. Dollar Index fell more than 0.7% intraday, hitting a low of 98.25.

The triple sell-off was driven by a combination of factors. Ahead of the Davos forum, Trump issued tariff threats to multiple European nations and even posted provocatively on Truth Social, claiming Greenland would become U.S. territory by 2026. This, along with the looming tariff war, the Greenland dispute, the spillover from uncontrolled long-term interest rates in Japan that day, and an announcement by Danish pension funds to sell U.S. Treasuries, caused U.S. stocks, the dollar, and Treasuries to plunge simultaneously.

U.S. Stocks Suddenly Face a New Round of Concentrated Selling

Despite U.S. Treasury Secretary Bessent's calls for all parties to stay calm and avoid panic, the market seemed unimpressed, with various assets continuing their relentless decline.

Since the start of 2026, Wall Street had viewed market behavior as exceptionally calm. As of last week, the average volatility across U.S. bond markets, stock markets, and the dollar remained at its lowest levels since at least 1990. At the beginning of this year, neither the White House sanctions on Venezuela nor Trump's repeated pressure on the Fed triggered significant financial market swings, as the market showed strong resilience.

Meanwhile, market sentiment was quite optimistic, with U.S. stocks continuing to trend higher in early January. Bank of America's latest survey showed that investor sentiment had reached its most bullish level since July 2021, while cash holdings dropped to historic lows. The survey also indicated that nearly half of respondents had taken no protective measures against a major market correction—the highest proportion since 2018—highlighting the current market's underestimation of risk.

That calm has now been shattered. The rapid escalation of the Greenland dispute and the triple sell-off in the U.S. market prove that the market's capacity to absorb shocks has been exhausted.

Current market anxieties are focused on Trump. While there is a general expectation that U.S.-EU relations will eventually normalize and the Greenland dispute will be resolved through diplomacy, Trump's recent moves and the White House's typical negotiation style have unsettled the market.

Alexis Bienvenu, an investment manager at French asset manager La Financière de l’Échiquier, noted that there is clear unease over how far Trump might go with this new threat strategy. Although history shows Trump typically returns to negotiations to ease tensions after issuing high-pressure signals, market confidence is repeatedly shaken during such episodes.

Krishna Guha, head of central bank strategy at Evercore ISI, pointed out that in a base-case scenario, the market believes a compromise will eventually be reached to de-escalate, but if the situation spins out of control, it could have long-term and profound effects on the dollar.

The Greatest Risk to Dollar Assets: The EU Activates Its Anti-Coercion Instrument

Mike Wilson, chief U.S. equity strategist at Morgan Stanley, said that Trump's new tariff threats against the EU have limited direct cost implications for major U.S. stock indices, but sectors like automotive transport equipment, consumer staples, raw materials, and healthcare will face the most significant risk.

Wilson noted that the biggest risk from the Greenland crisis is the possibility of the EU activating its Anti-Coercion Instrument, targeting the services sector, which could create greater headwinds for large-cap U.S. tech stocks.

However, Sven Jari Stehn, chief European economist at Goldman Sachs, was more optimistic, stating that activating the tool is not the same as imposing sanctions, as the latter requires several steps. While activating the instrument signals potential EU action, it also leaves a window for negotiations.

Christopher Granville, managing director at TS Lombard, said that while a significant drop in U.S. stocks is possible, it would require a specific trigger: only if trans-Atlantic tensions escalate into a more aggressive confrontation—such as Trump weaponizing LNG exports or the EU using the Anti-Coercion Instrument to restrict market access for Big Tech—would U.S. equities likely see a major sell-off.

Furthermore, the dollar and Treasuries would be impacted. Christopher Hodge, chief U.S. economist at Société Générale, noted that if the U.S. were to seize Greenland by force, it could spark a short-term rush into Treasuries while European bonds are sold off, benefiting the dollar and Treasuries via safe-haven inflows; but if U.S.-EU relations rupture, concerns about the dollar's status could re-emerge.

Kallum Pickering, chief economist at the independent London investment bank Peel Hunt, said that if the conflict escalates, the market may become more concerned about the erosion of U.S. policy credibility, which would place further downward pressure on the dollar.