Why did Stocks Drop on Tuesday?

TLDR

• US stock futures rose 0.2-0.3% on Wednesday after the Dow fell 850+ points on Tuesday, marking the worst day since October 10 for major indexes
• Market selloff triggered by Trump threatening 200% tariffs on French wine and demanding eight NATO countries allow Greenland acquisition
• Investors are applying the “TACO” pattern (Trump Always Chickens Out), betting Trump will walk back threats after market reaction
• Gold hit a record $4,864 per ounce while the 10-year Treasury yield fell to 4.27% after spiking above 4.3% Tuesday
• Netflix stock fell in premarket trading after earnings, while Johnson & Johnson and Charles Schwab are set to report Wednesday

US stock futures climbed on Wednesday morning after a severe market selloff the previous day. Dow Jones Industrial Average futures rose 0.2%, while S&P 500 and Nasdaq 100 futures both gained 0.3-0.4%.

The modest rebound follows Tuesday’s dramatic losses. The Dow plunged more than 850 points, while both the S&P 500 and Nasdaq Composite dropped over 2%. All three major indexes recorded their worst daily performances since October 10.

The selloff occurred after President Donald Trump escalated tensions with multiple countries. Trump threatened to impose tariffs on eight NATO countries unless they allow his administration to acquire Greenland. He also threatened 200% tariffs on French wine and champagne after French President Emmanuel Macron declined a role on Trump’s proposed “Board of Peace” for Gaza.

The market reaction included a classic “sell America” trade pattern. US Treasury yields jumped sharply, with the 10-year yield briefly topping 4.3%. The US dollar weakened during the session.

Market Recovery Pattern Emerges

Investors appear to be applying what traders call the “TACO” pattern to Wednesday’s rebound. The acronym stands for Trump Always Chickens Out, describing the president’s tendency to walk back tariff threats after market selloffs.

Michael Brown, a strategist at Pepperstone, said Trump’s tariff threats are likely a negotiating tactic. He expects progress toward finding a middle ground this week. Brown called buying the equity dip his preferred strategy.

On Wednesday, the 10-year Treasury yield fell 3 basis points to 4.27%. Treasury Secretary Scott Bessent, speaking at the World Economic Forum in Davos, blamed recent yield increases on Japanese bond selloffs rather than a sell America trade.

Safe Haven Assets Rally

Gold futures surged 2.1% to a record $4,864 per ounce. Silver also reached new records. The precious metals rally continued despite the stock market rebound.

Bitcoin dropped 2.2% over 24 hours to $89,013. The cryptocurrency tends to reflect broader risk sentiment in markets.

The dollar held steady against a basket of peer currencies. It had dropped 0.5% in the previous session.

Trump is scheduled to hold meetings about Greenland at the World Economic Forum in Davos on Wednesday. He will also deliver a key address at the event.

The Supreme Court heard oral arguments Wednesday about Trump’s firing of Federal Reserve member Lisa Cook. The case examines whether Fed members have legal protection from presidential removal.

Netflix stock fell in premarket trading after releasing earnings results. The streaming company’s report showed more uncertainty ahead. Johnson & Johnson and Charles Schwab are scheduled to report earnings Wednesday, along with several mid-sized financial institutions.

The S&P 500 and Nasdaq both entered negative territory for 2026 after Tuesday’s losses. The Japanese government bond market also saw movement, with the 40-year yield falling 16 basis points after hitting a record high Tuesday.

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