Investors reacted emphatically to President Trump’s insistence that he won’t back down on his plan to take over Greenland: They hate it. The S&P 500 fell 2% yesterday, even though 81% of its companies have beaten their Q4 earnings expectations so far. The dollar fell off a cliff, losing nearly 1% of its value against a basket of foreign currencies. U.S. bond prices weakened modestly. Gold, the safe-haven investment, hit yet another new record high.
The “sell America” trade is in full effect, in other words. S&P futures were up marginally this morning, suggesting that the bloodletting was put on hold until Trump’s speech at the World Economic Forum meeting in Davos later today. Trump offered a small ray of hope before he left for Switzerland when he told NewsNation: “We’ll probably be able to work something out.”
The drama has started a global debate about ending America’s “primacy” as the place for investors to hold assets. Increasingly, analysts and economists are talking about hedging against U.S. risk and deploying their capital in markets that are more predictable. The fact that the S&P 500 underperformed last year compared with markets in Asia and Europe is helping make the case. It’s a rerun in 2026, too. The S&P is down 0.71% year to date, while the Europe STOXX 600 is up 0.69%, and the South Korean KOSPI is up an astonishing 14%.
“Until the U.S. no longer ‘threatens’ with the use of tariffs … the so-called primacy of the U.S. remains at risk of further dissolution, and with it an upending of the geopolitical alignments that have upheld markets in recent years,” Macquarie analysts Thierry Wizman and Gareth Berry wrote in a recent note to clients.
Their argument—perhaps one of the most extreme ones that Fortune has ever seen in an investment bank research note—is that when the U.S. goes through a major political convulsion, a period of stagnation follows, and thus investors should begin moving their money away from America:
“A line can be traced, for example, from the failure of the U.S. in the Vietnam War and the follow-on decline in U.S. primacy, to the U.S.’s gold reserve depletion, and the subsequent end of the fixed exchange rate system under the Bretton Woods Agreement of 1944. The ‘fiat money’ era that followed was associated with a large decline in the real value of the USD, from 1971 until 1981, as well as a period of inflation and recessions across the 1970s,” they said.
“We should worry about the USD and its relation to other currencies, too. If the reserve status of the USD does depend on the U.S. role in the world—as guarantor of security and a rules-based order—then the events of the past year, and of the past three weeks, in particular, carry the seeds of a reallocation away from the USD, and the search for alternatives, especially among reserve managers. So far, allocators have only found solace in gold, but they may eventually move toward other fiat currencies, too.”
Wall Street got a glimpse of what this might look like when the Danish retirement savings fund AkademikerPension said yesterday that it would sell its $100 million stake in U.S. bonds by the end of the week.
So far, traders are flinching at Trump’s actions. But we haven’t yet seen the kind of full-scale capital flight away from U.S. assets that might, for instance, raise inflation and interest rates or trigger a recession. But the mere fact that Wall Street is discussing it is significant.
Deutsche Bank’s George Saravelos told clients in a note at the weekend: “Europe owns Greenland, it also owns a lot of Treasuries. We spent most of last year arguing that for all its military and economic strength, the U.S. has one key weakness: It relies on others to pay its bills via large external deficits. Europe, on the other hand, is America’s largest lender: European countries own $8 trillion of U.S. bonds and equities, almost twice as much as the rest of the world combined. In an environment where the geo-economic stability of the Western alliance is being disrupted existentially, it is not clear why Europeans would be as willing to play this part. Danish pension funds were one of the first to repatriate money and reduce their dollar exposure this time last year. With USD exposure still very elevated across Europe, developments over the last few days have potential to further encourage dollar rebalancing.”
This note was internally controversial. Deutsche Bank CEO Christian Sewing had to call U.S. Treasury Secretary Scott Bessent to disavow it.
The CEO does not stand by it, but Saravelos’s colleagues may be more sympathetic. Jim Reid and his team, who religiously send an early morning email summarizing market action, did not send their email this morning. The bank told Fortune: “Deutsche Bank Research is independent in their work, therefore views expressed in individual research notes do not necessarily represent the view of the bank’s management.”
In fact, the idea that Europe might move out of U.S. assets is a commonplace inside investment banks right now. At UBS, Paul Donovan told clients earlier this week: “The implications of additional tariffs are more U.S. inflation pressures and a further erosion of the USD’s status as a reserve currency. So far, bond investors do not seem to be taking the threats too seriously.”
This morning he said that the most likely scenario wouldn’t be investors selling U.S. debt but simply refusing to buy new debt, thus reducing the flow of funds that the America is dependent on.
In a tariff war, one under-discussed weapon at Europe’s disposal is its Anti-Coercion Instrument: It has the power to ban U.S. services businesses from the EU.
“U.S. services exports to the EU were $295B in 2024, equivalent to 0.9% of U.S. GDP, suggesting the harm could be much greater if the EU pulled this relatively new lever at its disposal than if it responded simply with tariffs, though its economy would be hurt more, too,” Pantheon Macroeconomics analysts Samuel Tombs and Oliver Allen told clients.
“In short, nobody would win from a new trade war, but the EU has ample scope to harm the U.S. if the Greenland situation escalates,” they said.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures were up 0.19% this morning. The last session closed down 2.06%.
- The STOXX Europe 600 was down 0.4% in early trading.
- The U.K.’s FTSE 100 was flat in early trading.
- Japan’s Nikkei 225 was down 0.41%.
- China’s CSI 300 was flat.
- The South Korea KOSPI was up 0.49%.
- India’s Nifty 50 was down 0.3%.
- Bitcoin was down to $89K.
