Wall Street woke up cheering on Thursday: stocks ticked higher, volatility cooled and gold hit fresh highs after President Trump backed off threats to impose additional tariffs on several European countries tied to his push for Greenland.
The S&P 500 closed up about 0.55%, putting it back above 6,900 and within roughly 1% of its record high. Futures were softer before the next session, suggesting some profit-taking, but the overall mood had a surprisingly calm tilt after a week that had felt like a geopolitical hand-grenade tossed into markets.
Why traders relaxed
Two things did the heavy lifting. First, banks and strategists reassessed the likely economic hit from Mr. Trump’s tariff moves and concluded it would be smaller than the earlier “worst-case” scenarios. JPMorgan analysts estimated the realized tariff rate landed nearer to ~11% versus the 15% many feared; firms have adjusted pricing and supply chains and only about 14% of S&P 500 companies are highly sensitive to the measures. That dampens the shock to corporate margins and the growth outlook.
Second, markets are increasingly betting that the U.S. Supreme Court will limit the president’s unilateral authority to impose tariffs. Prediction markets put the odds of the Court ruling against the government at better than 65% after November’s oral arguments — a vote of confidence that the legal system could strip away the policy risk that briefly rattled investors.
Taken together, those two forces helped push the VIX — Wall Street’s fear gauge — back down to the mid‑teens, roughly where it sat before the tariff scare.
The economic backdrop is helping, too
A revised estimate showing Q3 2025 U.S. GDP grew at an annualized 4.4% only reinforced the bullish case. Analysts pointed to resilient consumer spending, a rebound in federal outlays, stronger net export contributions and a burst of equipment and AI‑related investment as the engines of momentum. If growth stays north of 3% for the year, some strategists say it could underpin double‑digit stock returns.
That surge in AI spending shows up in different corners of the market and tech ecosystem. Financial tools and services are already adding AI search and prediction features, and large platform players are integrating next‑generation models into core products — developments that make the investment thesis for AI-capex concrete rather than speculative. See how firms are embedding generative models into finance and consumer products in recent coverage like Google Finance Adds Gemini “Deep Search,” Prediction Markets and Live Earnings Tools and Apple to Use a Custom Google Gemini Model to Power Next‑Gen Siri.
Enter the TACO trade — and a reminder of fragility
Some traders half-jokingly revived the “TACO” shorthand — “Trump Always Chickens Out” — to describe the quick reversal and the price relief that followed. There’s a grain of truth in the jest: markets have seasoned themselves to quick policy pivots and to the fact that political bluster doesn’t always translate into lasting economic policy.
Still, risk hasn’t vanished. Futures softened after the initial rally, and European markets were slightly lower in early trading, reflecting profit-taking and the fact that headlines can flip sentiment just as fast as they lift it. The legal path through the Supreme Court is not guaranteed, and any whiff of renewed tariff rhetoric or broader escalation could quickly revive the earlier jitters.
What investors are watching now
- Legal developments in the Supreme Court: a ruling against the administration would remove a sizable overhang on trade policy risk; a split or government win would reintroduce uncertainty.
- Inflation, growth and how persistent AI-driven capital spending proves to be — strong growth that’s not inflationary will be welcomed; growth that stokes higher rates would complicate equity valuations.
- Corporate earnings sensitivity to tariffs and supply‑chain frictions; while only a minority of firms are highly exposed, sectoral pockets (semiconductors, autos, industrials) could still feel localized pain.
Markets breathed easier this week because a headline threat lost steam and because the economic picture looks sturdier than feared. But the reprieve is not the same as resolution. Investors who cheered Thursday know the game isn’t over — it’s simply moved to a courtroom and into the cadence of economic data, where outcomes are slower and less theatrical, but ultimately more determinative.