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I really should buy volatility before I take days off. I thought it would be fun to extend the long weekend by spending an extra day in the UK with my older son – it was! – but it meant that I missed one of the more consequential market events in recent weeks.Instead, I happened to be over the Atlantic Ocean when the news broke about potential tariffs on European trading partners and again when stock markets were plunging yesterday in response. That said, I was paying close attention this morning when stocks attempted to rally after the President’s speech at Davos. As I type this around noon, the initial enthusiasm has faded considerably.

One of my constant refrains is that stock markets tend to ignore geopolitical events until or unless they have an obvious effect on the factors that directly affect equity valuations. Except for a few stocks like Critical Metals (CRML) that could benefit from exploiting Greenland’s resources, the political tug-of-war over the sparsely populated autonomous Danish territory had little to no impact on the vast majority of global corporations that make up key equity indices. That changed as soon as the prospect of increased tariffs on key European countries entered the fray.While we can debate the net effect of tariffs on specific companies, countries, and consumers, they are clearly detrimental at some level for at least some of those affected constituents. 

The tariff news came as markets were undergoing the latest legs of a major selling spree in Japanese bonds and a rally in the Chinese yuan.Neither is a positive for global risk tolerance, especially if European investors get a fresh reason to consider their exposures to US assets.On Friday, we were moderately dismissive of the fact that 10-year Treasury yields crept over the 4.20% level because it was occurring on light volume ahead of a three-day weekend.Unfortunately, yesterday’s action confirmed Friday’s selloff.Rather than seeing a flight-to-safety bid in Treasuries, they sold off.It is difficult to separate how much of that was influenced by events in Japan versus those involving Greenland, but neither was helpful.Today we see a modest improvement in yields across the curve, but nothing close to wiping out the two-day changes.

This morning’s rally was understandable.Traders and investors alike are inclined to see selloffs as buying opportunities.Considering that yesterday’s selloff was larger than most, it was logical that many of them welcomed the President’s comments that military action in Greenland was off the table for now.It was also understandable, if not necessarily desirable, to see traders chasing that rally.Buying dips is one thing, chasing rallies is another.There was justifiable relief that investors’ most egregious fear was taken off the table, but it did not remove the economic consequences that tariffs could bring. 

During this morning’s rally, I once again noticed the divergences between precious metals and cryptocurrencies.In theory, both should be non-dollar hedges against global concerns.Gold and silver rallied yesterday, and the former continues higher today.Silver, which has become a speculative darling, faded today.Meanwhile, Bitcoin sank over the weekend, sank again yesterday, and after attempting to recoup the $90,000 level during this morning’s equity rally, faded again soon after.I view Bitcoin as a key barometer for risk tolerance, and it shows no inclination toward improving conditions.

Finally, I’ve received several questions today about whether this morning’s rally reflected the “TACO Trade,” where “TACO” is an acronym for “Trump Always Chickens Out”.I personally prefer to think of it as a “Trump Put,” where the President is willing to moderate his economic policies if markets react negatively.As with any nebulous fictional put, I defy anyone to tell me what the strike price might be for that put.This morning, even as stocks were rallying on the Davos address, the President put the kibosh on that notion by explicitly stating that yesterday’s decline wasn’t all that meaningful.A “Trump Put” might indeed exist, but as we learned in April, the strike price is well below the markets’ current level.

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