US Stocks Rally After Trump Announces Greenland Framework and Cancels European Tariffs

The US stock markets demonstrated a robust recovery on January 21, 2026, reversing the significant losses recorded during the previous trading session. The rally was triggered by President Trump’s announcements at the World Economic Forum in Davos, Switzerland, where he unveiled a diplomatic framework regarding Greenland and cancelled planned tariffs on European nations [1][2][3].

The Dow Jones Industrial Average led the advance, closing at 49,077 points with a gain of 589 points representing a 1.09% increase—the largest point gain among major indices. The S&P 500 closed at 6,876, adding 0.95% and recovering the majority of Tuesday’s decline. The Nasdaq Composite finished at 23,225, rising 0.90% as technology stocks contributed to the upside. The Russell 2000 small-cap index delivered the strongest relative performance, advancing 1.35% to close at 2,698, indicating renewed appetite for domestically focused equities [0][1].

The bond market also responded positively, with the 10-year Treasury yield falling 4 basis points as investor risk sentiment improved. The US Dollar Index recovered 0.3% to reach 98.82, suggesting stabilizing currency dynamics amid the geopolitical developments [0][1].

President Trump announced the cancellation of 10% tariffs on eight European countries that had been scheduled to take effect on February 1, 2026, with provisions for those tariffs to increase to 25% by June 2026. This decision followed discussions with NATO leadership and represented a significant de-escalation of trade tensions between the United States and European allies [2][5]. The tariff threat had been a primary driver of market volatility during the previous trading session, and its cancellation removed a substantial source of uncertainty for investors.

Following a meeting with NATO Secretary General Mark Rutte, President Trump stated that a “framework of a future deal” had been reached regarding Greenland. The specific terms of this framework were not disclosed publicly, leaving investors to assess the long-term implications based on limited information [2][5]. Earlier in the day at Davos, the president had pledged that he would not use military force to acquire Greenland, a statement that eased concerns about potential escalation of the geopolitical situation [1][5].

The Greenland discussions emerged from longstanding US strategic interest in the territory, which is an autonomous territory of Denmark. The Arctic region has gained increased strategic importance due to climate change opening new shipping routes and potential resource extraction opportunities.

This market move validated what analysts have termed the “TACO trade”—an acronym for “Trump Always Cancels Or…”—referring to the pattern wherein equity markets rally when the administration walks back previously announced tariff threats [2][5]. The phenomenon has become a notable feature of market dynamics during this administration period, with investors demonstrating increasing willingness to buy equities following selloffs triggered by aggressive trade rhetoric.

The January 21 rally followed this pattern precisely: Tuesday had seen steep market declines on concerns about escalating trade tensions, while Wednesday’s announcement of tariff cancellation prompted a sharp reversal. Market technicians noted that the speed and magnitude of the recovery suggested significant short-covering activity in previously punished sectors [3][4].

Energy (XLE), Materials (XLB), and Technology (XLK) sectors led the rally, reflecting the broad-based nature of the market advance [1][4]. The technology sector’s participation was particularly notable given its significant weighting in the Nasdaq Composite and its sensitivity to global trade conditions. The materials sector’s strength indicated expectations for improved global economic activity, while energy stocks benefited from the general improvement in risk sentiment.

The small-cap Russell 2000’s outperformance suggested that investors were rotating toward domestically focused companies that would benefit from reduced trade tensions with European allies. These companies often have less international revenue exposure than their large-cap counterparts, making them relative beneficiaries of trade de-escalation [0].

While the immediate market reaction was positive, several risk factors warrant attention. The details of the Greenland framework remain undefined, creating uncertainty about the long-term viability and economic implications of the agreement [2][5]. Investors should monitor for additional disclosures regarding the specific terms and commitments involved in the framework.

The market has now demonstrated sensitivity to tariff announcements and reversals, suggesting continued potential for volatility around major policy communications. The TACO trade pattern creates incentives for investors to position defensively ahead of potentially aggressive rhetoric, while also rewarding those who buy dips following reversals. This dynamic could lead to increased short-term volatility.

European relations have improved in the immediate term, but underlying disputes regarding trade, defense spending, and other issues remain unresolved. The cancellation of the February 1 tariff deadline removes an immediate pressure point, but future disagreements could trigger similar tensions.

Congressional reaction to the Greenland framework agreement also represents a potential source of uncertainty. The Constitution requires Senate approval for treaties, and the nature of the framework announced remains to be clarified regarding its legal status and ratification requirements [5].

The January 21, 2026 market rally represents a significant de-escalation of geopolitical tensions that had generated substantial market volatility. The announcements from Davos delivered three key elements that markets responded to positively: the cancellation of scheduled European tariffs, the establishment of a framework for Greenland negotiations, and presidential assurances against military force in pursuing those objectives.

Market breadth was strong, with all major indices advancing and small-caps outperforming. The bond and currency markets stabilized alongside equities, suggesting a coordinated improvement in risk sentiment across asset classes. The revival of the TACO trade pattern indicates that investors have internalized this dynamic and are positioning accordingly.

Looking ahead, market participants should monitor several developments: the publication of specific Greenland framework terms, European leadership responses to the tariff cancellation, congressional reactions to the agreements, and any indicators of future trade policy priorities. The February 1 tariff deadline is now off the calendar, but the underlying trade relationships that generated tension remain subject to negotiation and potential disagreement.

The immediate risk of geopolitical escalation has diminished substantially, though uncertainty regarding the ultimate resolution of these issues persists. Market models that incorporate geopolitical risk factors may need updating to reflect the reduced probability of immediate tariff implementation, while also maintaining sensitivity to potential future developments.