Dow Plunges 870 Points After Trump Tariff Threats

Wall Street was jolted on January 20, 2026, as U.S. equities suffered their steepest losses in months, all set in motion by President Donald Trump’s latest trade threats against Europe. The Dow Jones Industrial Average tumbled 870 points, or about 1.8%, closing at 48,488.59, while the S&P 500 slid 2.1% and the Nasdaq Composite dropped 2.4%. The pain was felt across the board: the tech-heavy Nasdaq dipped below its 50-day moving average for the first time since the start of the year, and the Cboe Volatility Index (VIX)—Wall Street’s so-called “fear gauge”—spiked to 20.69, a level not seen since late November, according to Reuters and Investopedia.

This market rout came in the first trading session after a U.S. holiday, with investors returning from Martin Luther King Jr. Day to find the financial landscape dramatically altered by a weekend social media post from President Trump. In a Truth Social announcement on January 17, Trump threatened to slap new tariffs on eight European countries—among them Denmark, France, Germany, and the United Kingdom—unless they supported his renewed push for the U.S. to acquire Greenland, a self-governing territory of Denmark. These tariffs, Trump said, would start at 10% on February 1 and escalate to 25% by June 1, remaining in place “until such time as a Deal is reached for the Complete and Total purchase of Greenland.”

The president’s rhetoric didn’t stop there. He also threatened a 200% tariff on French wine if French President Emmanuel Macron refused to participate in Trump’s proposed “Board of Peace” for Gaza. Trump’s message sent a chill through global markets, with the Associated Press noting that renewed tariff threats stoked inflation concerns and complicated the Federal Reserve’s already delicate outlook on interest rates.

European leaders were quick to push back. European Commission President Ursula von der Leyen, in a post on X (formerly Twitter), said she met with a bipartisan U.S. congressional delegation to discuss both the war in Ukraine and the Greenland tensions. Von der Leyen emphasized, “the need to unequivocally respect the sovereignty of Greenland and of the Kingdom of Denmark. This is of utmost importance to our transatlantic relationship.” The sentiment was echoed by other European officials, who labeled Trump’s latest threats as “unacceptable” and began discussing possible retaliatory measures, including the use of the European Union’s Anti-Coercion Instrument, as reported by CNBC.

Markets reacted swiftly and sharply. U.S. Treasury yields spiked, with the benchmark 10-year yield climbing to about 4.29%, up roughly seven basis points, reflecting fears that the trade spat could fuel inflation and drive up borrowing costs. The dollar, meanwhile, weakened as the Dollar Index slid nearly 1%, while gold and silver surged to fresh record highs—gold trading near $4,670 an ounce and silver briefly touching $94.73 an ounce, according to The Star and Bloomberg.

In a sign of mounting global anxiety, Danish pension operator AkademikerPension announced it would exit a $100 million position in U.S. Treasurys by the end of January, citing concerns over America’s fiscal outlook and the escalating geopolitical tensions. “It is not directly related to the ongoing rift between the [U.S.] and Europe, but of course that didn’t make it more difficult to take the decision,” said investing chief Anders Schelde in a statement to CNBC.

The mood among investors was unmistakably risk-off. Trading volume soared to roughly 20.6 billion shares, well above the recent average, as the so-called “sell America” trade gained momentum. Tech stocks, particularly the so-called Magnificent Seven, were among the hardest hit: Apple and Meta were both down about 8% year-to-date, while Microsoft had slipped 6%. Netflix shares declined 0.8% ahead of its earnings report after the bell, and the Nasdaq’s slide into negative territory for the year underscored the depth of investor unease, as highlighted by Investopedia and AP News.

Yet, not all corners of the market were equally battered. The Russell 2000 small-cap index managed to outperform its larger peers, down just 0.4% compared to the S&P 500’s 1.3% midday decline. Small caps, with their more domestically focused business models, have been buoyed by expectations of further Federal Reserve rate cuts and signs of resilient U.S. economic growth. Value-oriented retailers like Walmart and consumer staples giants such as Procter & Gamble and Allstate even managed to notch modest gains, helping to limit the day’s overall damage.

Adding to the uncertainty, U.S. Commerce Secretary Howard Lutnick, speaking in Davos, warned that if the European Union retaliated, “then we’ll be back to tit-for-tat” escalation—though he expressed hope the dispute would be resolved in a “reasonable manner.” U.S. Treasury Secretary Scott Bessent, meanwhile, defended Trump’s Greenland ambitions, saying the move could “prevent future conflict” and that Trump was showing the world “the U.S. is back.”

Back in the U.S., attention is now turning to a crucial round of economic data releases due Thursday. The Bureau of Economic Analysis will update its third-quarter 2025 GDP estimate and revised corporate profits, followed by delayed figures for personal income and outlays—including the all-important PCE price index, the Federal Reserve’s preferred inflation measure. The timing couldn’t be more fraught, with investors already on edge about the direction of Fed policy and the potential for more economic shocks.

Meanwhile, the White House is also expected to announce its pick for the next chair of the Federal Reserve in the coming days, with Treasury Secretary Bessent telling CNBC that President Trump has narrowed the field to four candidates and a decision could come as soon as next week. The selection process, which began in September, has been closely watched by markets wary of any sign of political interference in central bank independence.

As the dust settles, analysts are left parsing the implications of Trump’s aggressive trade stance. Stephen Innes, managing partner at SPI Asset Management, summed up the prevailing sentiment: the trade rift “caught markets off guard” since it wasn’t factored into expectations. Billionaire investor Ray Dalio, speaking at the World Economic Forum, warned that escalating trade conflicts could spill over into “capital wars,” raising the specter of diminished global appetite for U.S. debt. Harvard economist Kenneth Rogoff, also in Davos, cautioned that “the real fault lines were political, not economic,” and suggested that tariffs are becoming a permanent feature of U.S. policy.

For now, the world waits to see whether the threat of tariffs on European allies becomes reality—and how both sides will navigate the increasingly fraught intersection of trade, geopolitics, and market stability. One thing’s for sure: the markets are watching, and they’re on edge.