Stocks staged a sharp rebound Wednesday after President Donald Trump said he would not impose the tariff package scheduled for February and that a "framework" had been reached over Greenland and the Arctic — comments that reversed a sell-off sparked a day earlier by his talk of acquiring the island.
The Dow Jones Industrial Average jumped roughly 588 to nearly 700 points during the session, depending on which intraday read you follow, while the S&P 500 and Nasdaq climbed about 1.1%–1.5%. Tech names that had powered much of 2025’s gains — including chipmakers — led the bounce as investors rotated back into growth after a brief flight to safety.
A fast U-turn
Trump announced the pause in tariffs on Truth Social and doubled down on his Davos remarks that he would not use force to seize Greenland. Those comments calmed traders who had been fretting that tariff threats and talk of territorial grabs could tip a fragile global trade backdrop into something worse. "President Trump is so unpredictable and he changes direction so quickly," said Jed Ellerbroek, a portfolio manager at Argent Capital Management. "The stock market no longer assumes that his pronouncements are going to be enforced."
The reversal erased some of Tuesday’s pain: Treasury prices rose and yields fell after spiking the previous day, the dollar steadied, and safe-haven flows into gold eased slightly — though the precious metal remains elevated after a long run higher.
Winners, losers and wrinkle in Europe
Chip and AI-related stocks led gains, with names like Nvidia and AMD drawing renewed interest as investors bought back into the crowded growth trade. Broadcom executives also told analysts there's still "insatiable" demand for chips tied to AI workloads, a reminder that the technology cycle remains a structural support for parts of the market. The renewed appetite for AI chips comes amid a broader industry push — including new in-house models and image tools from big tech — that keeps demand expectations high even as some investors voice caution about valuations. (For context on recent AI model launches that are reshaping hardware demand, see Microsoft’s MAI rollout and related developments.)
Small-cap stocks were among the biggest beneficiaries: the Russell 2000 extended a streak of outperformance versus the S&P 500, hitting fresh highs in intraday trading as traders priced in a friendlier growth outlook if trade tensions cooled.
Not everyone took the détente at face value. European lawmakers announced they were suspending approval of a U.S.-EU trade deal reached last summer after Washington’s tariff threats, underscoring that political damage can linger even after a headline reversal. Officials in Brussels signaled they would prepare a range of retaliatory options that could include tariffs.
Why markets care beyond the headlines
This episode is less about one tweet or speech and more about policy credibility. Markets move on expectations: when investors believe trade disruptions are likely to be enforced, capital reallocates — often into safe assets or away from U.S.-centric growth trades. When those expectations change quickly, so too does market positioning, producing big swings.
Bond markets are the tell. Yields jumped on Tuesday when the tariff threat looked real, reflecting fears of higher inflation and risk premia; they fell back as the immediate threat diminished. The dollar and gold, two other barometers of global stress, reacted in kind.
There was also a separate, domestic legal spotlight that traders are watching: oral arguments at the Supreme Court over whether the president can fire a Fed governor without judicial review. Several justices voiced skepticism about an argument that could weaken Federal Reserve independence. Investors see Fed independence as a pillar of market stability; anything that shakes it can ripple through risk assets.
The tug-of-war ahead
Even after Wednesday’s rebound, the indexes remained volatile for the week. Analysts and market strategists cautioned that headlines in Davos — and follow-ups in Brussels and Washington — could keep sentiment choppy. Citadel founder Ken Griffin warned that trade uncertainty weighs on investment decisions globally, and many investors say they need to see consistent, credible policy signals before committing more capital.
For traders, the lesson is familiar: short-term headlines can spark outsized moves, but durable trends require clearer policy direction and evidence. For long-term investors, the tech-led rally highlights that structural demand for AI hardware and software remains a counterweight to geopolitical risk — even if it doesn’t insulate the market from periodic shocks. If you want to track how AI product cycles are influencing markets, recent platform and model launches help explain why chip firms still command attention and capital.
Markets will likely continue to trade on a mix of Davos soundbites, EU responses, Fed-related legal rulings, and company-level updates. Expect volatility until a steadier diplomacy or a formal deal — not just a framework — replaces the headlines.
Microsoft’s MAI-Image-1 launch and the spread of ‘deep search’ features across finance and productivity tools are part of the backdrop keeping hardware demand elevated, while new data integration work from Google underscores how AI is becoming embedded across services and could sustain the winners in this rally Gemini Deep Research’s Drive/Gmail integrations.