Investors revived the “Sell America” trade Tuesday and sold off US stocks, bonds and the dollar amid concerns about President Donald Trump’s clash with European leaders over ownership of Greenland.

The Dow closed lower by 871 points, or 1.76%. The broader S&P 500 fell 2.06%. The tech-heavy Nasdaq Composite slid 2.39%. The S&P and Nasdaq wiped out their gains for this year.

The Dow, S&P and Nasdaq each had their worst day since October 10, when Trump had threatened to hike tariffs on imports from China.

The dollar index, which measures the dollar’s strength against six major currencies, fell 0.8% Tuesday — a huge move in currency markets. The dollar index had its worst day since August. The euro was up 0.65% against the dollar.

The benchmark 10-year US Treasury yield, which trades in opposite direction to prices, rose to 4.29%. The 30-year Treasury yield jumped to 4.92%. Both yields hit their highest level since September.

“This is ‘Sell America’ again within a much broader global risk off,” Krishna Guha, vice chairman at Evercore ISI, said in a note. “The fact that the dollar is falling while the euro is rising on the crisis says global investors at the margin are looking to reduce or hedge their exposure to a volatile and unreliable US.”

“What remains to be determined is the magnitude and duration of these dynamics,” Guha said.

A snap election in Japan also rattled markets in Asia, sending Japanese bond yields surging higher due to nerves about Prime Minister Sanae Takaichi’s proposal to temporarily cut taxes on food despite the government’s enormous debt load. The surge in yields in Japan is adding to bond market jitters.

“I think it’s very difficult to disaggregate what the spillover from Japan is,” US Treasury Secretary Scott Bessent said Tuesday in a conversation with Maria Bartiromo at the World Economic Forum in Davos, Switzerland. “I’ve been in touch with my economic counterparts in Japan, and I am sure that they will begin saying the things that will calm the market down.”

The VIX index, commonly known as the fear gauge, surged 28% and posted its biggest single-day jump since October. The VIX rose above 20 points — a level that signals elevated volatility — for the first time since November. CNN’s Fear and Greed Index dropped from “greed” into “neutral.”

Trump’s tariff threat tests markets

Trump on Sunday threatened a new 10% tariff on imports from eight European countries including Denmark, the United Kingdom and France, amid his demands that the United States should acquire the Danish territory.

US stock and bond markets were closed Monday in observance of Martin Luther King, Jr., Day, so Tuesday marked the first full day for US stock and bond traders to react to the extraordinarily newsy weekend — and flaring trade tensions between the United States and Europe.

“The latest developments serve as a reminder that the US economy is not immune to the uncertainty generated by Trump’s policy shifts, while lingering concerns over Fed independence — amplified by the delayed nomination of a new chair and the ongoing probe into Federal Reserve Chair Jerome Powell — add another layer of caution around the US currency,” George Vessey, lead FX and macro strategist at Convera, said in a Monday note.

Europe’s benchmark Stoxx 600 index — which tracks stocks across the region — closed lower by 0.7% Tuesday. The Stoxx 600 on Monday fell 1.19% and posted its worst day since November.

Meanwhile, Denmark’s OMX Copenhagen 20 — which tracks the 20 most actively traded shares on Copenhagen’s stock exchange — rose 1.13%. The OMX Copenhagen 20 on Monday fell 2.73% and posted its worst day since October.

Wall Street braces for volatility

Investors across the globe are trying to discern how tensions between the United States and Europe might develop.

“This is one of those be-ready-for-anything weeks as wild cards abound for both US and global markets — most of them POTUS-related,” Ed Yardeni, president of Yardeni Research, said in a Monday note.

While investors are on edge, stock market losses so far have been relatively contained compared to the turmoil spurred by Trump’s initial “Liberation Day” tariff announcement in April.

Investors are cautiously watching for a potential off-ramp, including waiting for the US Supreme Court’s ruling on Trump’s use of an emergency powers act to levy tariffs.

The Court is deliberating the legality of the president’s use of the International Emergency Economic Powers Act of 1977 to implement tariffs. That to-be-determined ruling would have direct implications for Trump’s renewed threat of additional tariffs on imports from some European countries.

“Markets will trade risk-off, but bet that either the Supreme Court will take away Trump’s authority to impose tariffs in this manner, or Trump will deliver a TACO reversal anyway,” Guha at Evercore ISI said in a Monday note, referring to the Wall Street acronym for “Trump Always Chickens Out”.

But as tensions flare, uncertainty is rife.

Carsten Brzeski, global head of macro at ING, a Dutch bank, said in a Monday note that the tensions over Greenland and tariffs are “pushing the long‑standing transatlantic relationship into a severe crisis, with a clear risk of further escalation and unwarranted negative consequences for both Europe and the US economy.”

“With the EU readying potential retaliation — including not just tariffs but also possible use of the ‘anti-coercion instrument’ that would be extremely punitive towards US companies doing business in Europe — investors should be prepared for the likelihood that we are still on the way up in the ‘escalate to de-escalate’ cycle, and that the headlines could get worse before they get better,” Sarah Bianchi, chief strategist of international political affairs and public policy at Evercore ISI, said in a note.

The anti-coercion instrument is better known as Europe’s “trade bazooka,” a deterrent meant to stave off threats from unfriendly governments.

Elsewhere, metals soared as investors sought safe havens. Gold futures were up 3.6% and hit a record high above $4,750 a troy ounce. Silver futures surged 6.3% and earlier briefly hit a record high above $95 a troy ounce.

Meanwhile, bitcoin fell 3.9% across the past 24 hours and dropped below $90,000 Tuesday afternoon.

“It’s another geopolitical crisis instigated by President Trump,” Yardeni told CNN. “The market learned from last year’s tariff crisis that the president uses tariffs as a negotiating bat.”

“Markets don’t like that tariffs are being used as a bully club,” Yardeni said. “If the Supreme Court takes away the bat, markets might rally.”

While markets kicked off the week on a down note, the S&P 500 is roughly 2.71% away from an all-time high. (CNN)

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