Global Markets Navigate TACO Test, Brace for Tech Earnings and Geopolitical Stress
Global financial markets have successfully passed what traders are calling the TACO test, an acronym for Trump Always Chickens Out, but now face a new kind of stress test as fourth-quarter tech earnings approach amid unresolved geopolitical tensions. The market turmoil triggered by former President Donald Trump's inflammatory rhetoric about acquiring Greenland for the United States has subsided, but investors remain cautious as multiple risk factors loom on the horizon.
Market Recovery After Greenland Gambit
When Trump's comments about Greenland sparked a global selloff, markets rebounded as he backed off his threats on Wednesday, citing a "framework of a future deal" over the world's largest island. The Dow Jones Industrial Average ended down just 0.5% for the week, while the S&P 500 index lost 0.4%, and the Nasdaq Composite slipped a mere 0.1%. These small weekly moves, however, belied a turbulent stretch that saw European leaders threaten retaliatory measures to maintain sovereignty over Greenland.
Alexander Guiliano, chief investment officer of Resonate Wealth Partners, notes: "The stock market is likely to remain headline-sensitive for some time. This week's market action is an important reminder for investors to not allow political headlines out of Washington to affect their portfolio." Many investors were happy to buy the dip, supported by solid economic data including third-quarter GDP expanding at a 4.4% annualized pace, subdued jobless claims, and inflation data in line with expectations.
Tech Earnings Loom as New Stress Test
While investors who bet on TACO aced the test, another kind of stress test is coming soon with fourth-quarter tech earnings. Major technology companies including Apple, Microsoft, and Meta Platforms are scheduled to report results over the next few trading sessions. Tech has been wobbling lately, with several Magnificent Seven stocks lagging behind the broader market. The chip sector is particularly on edge, with Intel tumbling double digits on weak guidance, though some names like Advanced Micro Devices are performing well.
Transportation stocks hitting a record high provided an encouraging signal, historically a bullish indicator for the economy and market strength. Additionally, the University of Michigan's consumer sentiment index rose in January despite geopolitical upheaval, suggesting resilience in the American consumer. Jamie Cox, managing partner at Harris Financial Group, observes: "The wealth effect is alive and well with consumers. It's hard to be negative with GDP over 4%."
Geopolitical Risks and Precious Metals Surge
Greenland remains one of several unresolved geopolitical flashpoints, with U.S. tensions with Iran also running high as Trump announced sending an "armada" of U.S. warships to the Middle East. Amid this turmoil, precious metals have emerged as clear beneficiaries. Silver has been unstoppable, hitting $100 for the first time in history with a 43% year-to-date gain. Gold, up 15% so far in January, hit another record and is hovering just below $5,000 an ounce.
The gains for precious metals, combined with elevated volatility and weakness in the dollar, suggest markets could be in for continued turbulence. Joe Mazzola, head trading and derivatives strategist at Charles Schwab, warns: "All this suggests market participants don't believe this week's other storm—the geopolitical one—has completely faded." As investors bundle up for potential market freezes, the interplay between tech earnings, geopolitical risks, and economic indicators will dictate near-term financial stability.
