U.S. stocks are on track for their biggest drop of 2026 as Trump’s latest tariff threats roil global markets
President Donald Trump’s latest round of tariff threats, aimed at pressuring Europe to back a U.S. bid for Greenland, is stoking market instability.
The “Sell America” trade was making a comeback on Tuesday following President Donald Trump’s latest tariff threats against European allies, giving investors a taste of the volatility that rocked global markets in April.
U.S. stocks fell on Tuesday and continued moving lower in afternoon trading as markets reopened after the long holiday weekend. Treasury yields jumped, touching their highest level since the summer, while the U.S. dollar sold off. The pain wasn’t limited to the U.S.; stocks and bonds around the world sold off while haven assets like gold, silver and the Swiss franc (USDCHF) rallied.
“Sell America is back in a new form,” Gina Martin Adams, chief market strategist at HB Wealth, said during an interview with MarketWatch. “We came into this year with the market complacent on the idea that trade-policy risk was a 2025 story. It’s clearly something we will need to contend with in 2026.”
The S&P 500 SPX was off by 114 points, or 1.7%, at 6,826 in recent trading, as stocks moved off their session lows. The Nasdaq COMP was off by 448 points, or 1.9%, at 23,067. The Dow Jones Industrial Average DJIA was off by 669 points, or 1.4%, at 48,689, FactSet data showed. All three were on track for their worst day of 2026 so far, while the S&P 500 was headed for its worst showing since November. Big Tech stocks were hit particularly hard: The Roundhill Magnificent Seven exchange-traded fund was off by 2.3% at $63.38 in recent trading.
The Cboe Volatility Index VIX, better known as the VIX or Wall Street’s “fear gauge,” was up by 23% at 19.62, putting it just above its long-term average at around 19.5, FactSet data showed.
The ICE U.S. Dollar Index DXY, a measure of the dollar’s value against a basket of rivals, was off by 0.9% at 98.51 in recent trading after touching its lowest level of 2026. Tuesday’s slump erased much of the buck’s advance since Christmas Eve.
“The market is going to pay attention to the dollar as the harbinger of risk,” Martin Adams said. “If the dollar is falling, it is viewed as the anti-U.S. trade.”
Over the weekend, Trump said he would slap 10% tariffs on imports from eight European countries beginning next month. He later threatened tariffs as high as 200% on French wine and other products after French President Emmanuel Macron rebuffed Trump’s offer to join his Gaza peace board. Trump will speak at the World Economic Forum in Davos, Switzerland, on Wednesday. Some European lawmakers have urged the European Union to abandon a trade deal with the U.S. An emergency leaders’ summit has been scheduled for Thursday to discuss potential retaliatory measures.
Speaking during a press conference at Davos earlier, Treasury Secretary Scott Bessent dismissed the reaction to Trump’s latest tariff threats. “I would say this is the same kind of hysteria that we heard on April 2nd,” he said. He urged trade partners not to walk away from their deals with the U.S.
Yields on long-dated Treasury notes and bonds were moving higher, while the U.S. dollar was selling off. The yield on the 10-year Treasury note BX:TMUBMUSD10Y was up 5 basis points at 4.277%, according to FactSet data.
“I’m concerned on a lot of different levels that the president has pushed it way too far,” Kent Engelke, chief economic strategist at Capitol Securities Management, said Tuesday morning.
The 30-year Treasury yield BX:TMUBMUSD30Y was up 8 basis points to 4.912%. Engelke said he thinks the yield could “very easily” go up to 5%.
‘Today is a warning’
While it is unusual to see U.S. stocks, Treasurys and the dollar all sell off at the same time, it does happen. Dow Jones Market Data showed 18 instances in 2025 where the S&P 500 and ICE dollar index finished lower, while Treasury yields rose. Before Tuesday, the last time this happened was Dec. 1.
Richard Farr, chief market strategist at Pivotus Partners, cautioned that investors shouldn’t read too much into Tuesday’s selloff. A feared migration away from U.S. assets didn’t pan out in 2025, even after President Trump surprised global investors with his “liberation day” tariffs.
However, he warned that President Trump’s aggressive rhetoric toward Fed Chairman Jerome Powell and Greenland risked undermining confidence in U.S. bonds and the dollar.
“Today is a warning,” Farr told MarketWatch.
The reaction in markets has so far been modest compared with what investors experienced back in April. Back then, the S&P 500 skidded right to the edge of bear-market territory before Trump announced a 90-day pause.
Internationally, the European STOXX 50 XX:SX5P fell for a third day, adding to its losses from Monday’s session. The Japanese Nikkei 225 JP:NIK and Hong Kong’s Hang Seng Index (HK:11) fell for a fourth straight day. The iShares MSCI Emerging Markets ETF EEM opened lower, FactSet data showed.
In Japan, local government bonds were selling off hard. The yield on the Japanese 40-year bond BX:TMBMKJP-40Y was up 27 basis points at 4.215%, the highest yield ever recorded, according to FactSet. Bond yields move inversely to prices.
The selloff in Japanese bonds was adding to the pressure facing riskier assets like stocks on Tuesday, said Lukman Otunuga, senior markets analyst at FXTM, in commentary shared with MarketWatch.
Fresh tariff threats could undercut expectations for global economic growth to accelerate in 2026, Otunuga added.
Bitcoin (BTCUSD) briefly broke below $90,000 on Tuesday shortly after the U.S. equity market opened for business. Prices for the pioneering digital currency were down 3% at $90,323 in recent trading.
Gold and silver hit a fresh round of intraday record highs in early trading on Tuesday. Silver (SI00) was up 6.1% at $94.04 an ounce in recent trading, based on action in its most-active futures contract, FactSet data showed. Gold (GC00) was up 3.2% at $4,744 an ounce.
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