Week:

S&P500: -0.7% FTSE100: -0.5%  Gold: +8.2% Bitcoin: -1.9%

YTD:

S&P500: +0.8%  FTSE100: +2.0%  Gold: +17.2% Bitcoin: +0.4%

Greenland Shock Reverses, but Policy Risk Keeps Markets on Edge

Source: Connect Weekly | Week ending 24 January 2026

US equities endured a volatile week dominated by shifting geopolitical rhetoric, rapid reversals in risk appetite, and growing fiscal uncertainty in Washington. Markets sold off sharply early in the week after President Trump escalated threats tied to Greenland and European tariffs, before rebounding just as quickly when those threats were partially walked back. By Friday, indices had stabilised, but investors headed into the weekend facing a renewed risk: a rising probability of another US government shutdown.

What drove markets this week

Markets reopened on Tuesday following a US holiday to a wave of risk-off selling. Trump’s threat to impose sweeping tariffs on European allies unless the US is allowed to purchase Greenland rattled equities, erased year-to-date gains for the S&P 500 and Nasdaq 100, and sent investors rushing into gold and silver. All Magnificent 7 stocks fell, bitcoin and ethereum traded lower, and consumer staples was the only sector to finish in the green.

Wednesday brought a dramatic reversal. Trump softened his stance, signalling he would not proceed with tariffs after reaching what he described as a “framework” agreement involving NATO leadership. The relief rally was broad-based, with all sector ETFs higher and small caps fully retracing their losses. The Russell 2000 outperformed the S&P 500 for the 13th consecutive session, underlining how sensitive leadership remains to shifts in policy risk.

Recovery continues, leadership rotates

Thursday extended the rebound, though markets remained below levels seen before the Greenland shock. Big Tech led gains as confidence returned to the AI theme, while the Russell 2000 extended its historic run of outperformance to 14 straight sessions. November PCE, the Fed’s preferred inflation gauge, came in line with expectations, helping stabilise rate-cut assumptions. Chipmakers, AI infrastructure names, and selective consumer stocks participated, while dilution-related offerings weighed on some high-beta names.

Friday: Markets steady ahead of Big Tech earnings

Friday trading was choppy as investors positioned ahead of next week’s heavy slate of Big Tech earnings. The S&P 500 finished marginally higher, the Nasdaq 100 outperformed and fully erased losses from the Greenland episode, while the Russell 2000 fell, snapping its 14-session streak of outperformance. Semiconductors held up well, but financials lagged. Silver pulled back sharply after strategists flagged downside risk following its rapid rally earlier in the month.

Weekend risk returns: shutdown back in focus

The weekend brought fresh uncertainty. Political fallout from a fatal federal law enforcement operation in Minnesota triggered a sharp shift among Senate Democrats, who vowed to block Department of Homeland Security funding. With temporary funding for more than 75% of federal discretionary spending expiring at midnight Friday, betting markets now place the probability of a partial government shutdown at around 77%. Any changes to the current funding package would require unanimous Senate consent or sending legislation back to the House, which is already out of session.

Looking ahead

Markets enter the coming week balancing easing geopolitical tension abroad with rising fiscal risk at home. Big Tech earnings will be a major test for sentiment, while the shutdown debate threatens to reintroduce data delays and volatility. Leadership remains fragile: small caps have carried the baton, but conviction is thin. With policy risk back on the agenda, markets appear willing to rally but only conditionally.

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