Markets drop
US stock markets opened lower on Tuesday after being closed on Monday for Martin Luther King, Jr., Day. Investors were reacting to political developments and trade-related comments made over the weekend. The Dow Jones Industrial Average fell by more than 700 points in early trading. The S&P 500 and the Nasdaq Composite both dropped over 1.5%. These losses erased gains made earlier in the year. Market volatility increased quickly. The VIX index, known as the fear gauge, jumped more than 20% and moved above the 20 level. European stock markets also declined. Major indices across the region fell for a second day in a row. Investors feared that trade tensions between the US and Europe could get worse.
Dollar weakens
The selloff was not limited to stocks. The US dollar fell sharply against other major currencies. The dollar index dropped close to 1%, its biggest fall in several months. Investors reduced exposure to US assets due to uncertainty over policy direction. US government bond yields rose as prices fell. The 10-year Treasury yield moved above 4.25%. The 30-year Treasury yield climbed close to 5%. Rising yields suggest investors are asking for higher returns to hold US debt. Bond markets were also affected by events in Japan. Government bond yields there rose sharply due to political uncertainty and concerns about possible tax cuts despite high public debt. This added pressure to global bond markets.
Tariff threat
Market concerns grew after President Trump threatened new tariffs on imports from several European countries, including Denmark, the UK, and France. These comments were linked to his demand that the US should take control of Greenland, an autonomous territory of Denmark. European leaders rejected the idea. Investors now fear that the European Union could respond with tariffs or other trade measures. Such steps could hurt trade and slow economic growth. Investors are also watching the US Supreme Court. The Court is reviewing whether the president can use emergency powers to impose tariffs.
Gold rises
As stocks and the dollar fell, investors moved toward safe assets. Gold prices rose more than 3% to a record high above $4,700 per ounce. Silver prices also increased sharply. Despite the losses, US stocks remain close to record levels. The S&P 500 is still only a few percentage points below its all-time high. However, investors remain cautious as political risks continue.
