The stock market generally hates the element of surprise.
That could especially be the case in the near term, where euphoric stock valuations are now being met with the return of Trump trade war tariff madness.
“It’s a market surprise and feels like a left hook by Apollo Creed in the first Rocky movie,” Wedbush analyst Dan Ives told Yahoo Finance.
The Dow Jones Industrial Average (^DJI), the S&P 500 (^GSPC), and the Nasdaq Composite (^IXIC) all suffered heavy losses on Tuesday morning, with investors bidding up safe-haven assets in gold (GC=F).
President Trump on Saturday warned that the US will enact tariffs of 10% on eight European countries. The duty will escalate to 25% in June, unless the US gains control of Greenland. The targets included key trading partners like the UK and Germany and came after Trump threatened on Friday to take control of Greenland even if he doesn’t get the green light from European lawmakers.
Read more: How Trump’s tariffs affect your money
The rhetoric on tariffs and Greenland has ratcheted up from there as Trump and his administration make their way to the World Economic Forum in Davos, Switzerland. Trump is expected to meet with top CEOs at the global confab and make a highly anticipated speech on Wednesday.
“What President Trump is threatening on Greenland is very different than the other trade deals,” Treasury Secretary Scott Bessent reportedly said in a press event on the ground at Davos. “So I would urge all countries to stick with their trade deals, we have agreed on them, and it does provide great certainty.”
He alluded to this moment being comparable to 2025’s Liberation Day, when the unveiling of tariffs crushed markets, “I would say this is the same kind of hysteria that we heard on April 2.”
Bessent went on to say at the press event that it would be “unwise” for European countries to retaliate on the tariff front.
Read more: The latest news and updates on Trump’s tariffs
Citi strategists were among the first on Wall Street to imply the latest tariff tussle will have staying power, and must be factored into global stocks.
“The latest step-up in transatlantic tensions and tariff uncertainty dents the near-term investment case for European equities, casting doubt on broad-based EPS inflection in 2026,” Citi strategist Beata Manthey wrote. “We therefore downgrade continental Europe to Neutral in a global context for the first time in over a year.”
Manthey further downgraded “internationally exposed” sectors in autos and chemicals due to the fresh trade uncertainty.
JPMorgan strategist Greg Fuzesi wrote in a note, “If it [the Greenland issue] triggers a larger sentiment effect by generating more profound uncertainty, its economic implications could be larger.”
The bottom line here right now: The markets hate the return of tariff uncertainty because it’s ill-prepared for it. Investors have spent the months following the Liberation Day massacre in markets returning to their favorite AI growth stocks such as Nvidia (NVDA), Google (GOOG) and Microsoft (MSFT). To kick off 2026, they have broadened out their buying to more industrial names that have a value bent.
All this Greenland drama throws a wrench into the bullishness.
Protection against a stock correction — measured by the VIX volatility index (^VIX) — has tanked to an eight-year low, according to a new survey of fund managers today from BofA. The survey was conducted before the weekend’s escalations over Greenland.
Read more: How to protect your money during economic turmoil, stock market volatility
Cash levels for fund managers have fallen to a record low. Allocations to stocks have climbed to the highest since December 2024.
If this is a market prepared for a stretch of tariff volatility, then I better find a new job!
Meanwhile, the forward price-to-earnings ratio (PE) for the S&P 500 is 23 times — well above the 10-year average of 18.7 times. Stocks are almost as richly valued as when they hit a peak in early January 2022.
“There’s clearly room for bigger moves [in markets] if the rhetoric increases further,” Deutsche Bank strategist Jim Reid said.
It sure seems that way for a market ill-prepared for negative surprises.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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