11:44 pm - February 4, 2026
US stock markets staged a strong recovery Wednesday after President Donald Trump softened his stance on European tariffs and territorial ambitions for Greenland, calming investor fears that had triggered a sharp selloff earlier in the week. The market rebound came after Trump announced he would not impose planned tariffs on European countries set to take effect February 1, following what he described as a productive meeting with NATO Secretary General Mark Rutte.
The Dow Jones Industrial Average surged 589 points, or 1.21 percent, reversing Tuesday’s 871-point decline. The S&P 500 climbed 1.16 percent in its best session since late November, while the Nasdaq Composite gained 1.18 percent, marking its strongest performance in more than a month. According to market data, the S&P 500 now sits just 1.6 percent below its record high.
Trump Reversal Triggers Market Recovery
Trump posted on Truth Social that he had formed a framework for a future deal regarding Greenland and the Arctic region following his discussion with Rutte. The announcement represented a dramatic shift from his earlier aggressive rhetoric that had prompted investors to dump US assets. The president also stated he would not use “excessive strength and force” to acquire the Danish territory, though he maintained his interest in obtaining Greenland.
The sharp policy reversal sparked immediate relief across financial markets. The S&P 500 peaked with gains of 1.67 percent during afternoon trading before settling slightly lower. Wall Street analysts noted the move aligned with a popular trading strategy dubbed “Trump Always Chickens Out,” or TACO, which anticipates the president backing down from controversial threats when markets react negatively.
Bond Market Pressures Influence Policy Decisions
According to Art Hogan, chief market strategist at B. Riley Wealth Management, the Wednesday rebound demonstrated the TACO trade in action. However, market observers remain divided on whether Trump’s confrontational approach represents temporary retreats or strategic pauses. The bond market reaction proved particularly significant, as Treasury yields had climbed to their highest levels since September on Tuesday.
Neil Wilson, strategist at UK trading platform Saxo Markets, said in a note that the bond market represents perhaps the only force capable of restraining Trump’s ambitions. Treasury yields influence borrowing costs throughout the US economy, affecting government, business and consumer debt. A sustained selloff in US bonds could have sent yields soaring, creating financial headaches for the administration.
Historical Precedent From Liberation Day Tariffs
The recent market turbulence recalled the spring “Sell America” trade, when Trump’s Liberation Day tariffs triggered widespread selling of US stocks, bonds and the dollar. That episode saw Treasury yields spike so dramatically that the administration paused most planned tariffs for 90 days. Trump acknowledged at the time that bond investors were getting “yippy,” according to reports.
Meanwhile, Tuesday’s market stress proved less severe than the April turmoil. Investors showed greater skepticism about Trump following through on threats to acquire Greenland, limiting the initial damage. Additionally, Wall Street has grown more familiar with the administration’s pattern of aggressive announcements followed by tactical retreats.
Competing Market Theories on Trump Strategy
In contrast to the TACO interpretation, Ethan Harris, former head of global economics at Bank of America, argued investors should consider “Trump Always Tries Again,” or TATA. Harris suggested the president delays policies when markets demand but ultimately pursues his original objectives. This perspective warns against assuming Wednesday’s reversal represents a permanent policy shift.
Karl Schamotta, chief market strategist at Corpay, said in a note that while the immediate tail risk has diminished, the episode reminded investors of the erratic nature of current US policy. He indicated that gradual diversification away from US assets could continue despite the short-term stabilization. European entities hold approximately $8 trillion in US stocks and bonds, according to Deutsche Bank data.
European Trade Response Remains Uncertain
The European Union possesses retaliatory tools that could impact major US corporations, particularly technology companies that have driven recent market gains. However, the friendlier tone established between Trump and Rutte has created uncertainty about what additional measures might be necessary. Eric Teal, chief investment officer at Comerica Wealth Management, said in an email that the Greenland crisis appears to be defusing, though details about the framework agreement remain forthcoming.
Arun Sai, senior multi-asset strategist at Pictet Asset Management, indicated Tuesday that barring extreme scenarios involving coercive actions, market volatility would likely prove short-lived and less pronounced than the Liberation Day selloff. The immediate market response to Trump’s announcement has supported that assessment, with major indices recovering most of Tuesday’s losses.
Details of the framework agreement between Trump and NATO leadership have not been disclosed, and the administration has not confirmed a timeline for finalizing any deal. Markets will likely remain sensitive to further developments regarding European relations and tariff policy in the coming weeks.
