President Trump backed off tariff threats after reaching a Greenland framework deal with NATO, sparking a market rally and reviving Wall Street’s favorite acronym!
Markets love patterns. And over the past year, one pattern has emerged so consistently that Wall Street gave it a name: the “TACO trade.” The acronym stands for “Trump Always Chickens Out,” and this week’s developments around Greenland provided a textbook example of how this phenomenon works.
On Wednesday, January 21, 2026, President Trump announced he had reached a “framework of a future deal” with NATO regarding Greenland, simultaneously calling off threatened tariffs against eight European countries. The S&P 500 surged 1.16%, the Dow Jones Industrial Average jumped 588 points (1.21%), and the Nasdaq Composite climbed 1.18%. Just one day earlier, those same indexes had suffered their worst losses since October, with the S&P 500 plummeting 2.1% amid fears of a transatlantic trade war.
For new traders trying to understand market behavior, this episode offers valuable lessons about how geopolitical threats, presidential policy shifts, and investor psychology interact to create tradable patterns—and the risks that come with betting on them.
What Happened at Davos?
Let’s rewind to understand the full story. In early January 2026, President Trump rekindled his interest in acquiring Greenland, the massive Arctic territory that’s a self-governing region of Denmark (a NATO ally). When Denmark and Greenland’s leaders firmly rejected any discussion of a sale, Trump escalated dramatically.
On January 18, he threatened to impose 10% tariffs on eight European countries—Denmark, Norway, Sweden, Finland, France, Germany, the United Kingdom, and the Netherlands—starting February 1, with those tariffs rising to 25% by June 1 unless Denmark agreed to sell Greenland. He also refused to rule out military action, causing alarm across Europe and sending markets tumbling.
Then came the classic reversal. After a meeting with NATO Secretary General Mark Rutte at the World Economic Forum in Davos, Switzerland, Trump announced the framework deal and backed off the tariffs entirely. The exact details remain vague (Trump called it “a little bit complex”), but sources indicate the agreement appears to focus on enhanced U.S. military presence and resource development rights in the Arctic region rather than actual territorial acquisition.
Markets, which had been bracing for a trade war, exhaled collectively and rallied hard.
Why Did This Happen? Understanding the “TACO Trade”
The term “TACO trade” was coined by Financial Times columnist Robert Armstrong in May 2025, shortly after Trump’s “Liberation Day” tariffs sparked and then reversed course. On April 2, 2025, Trump announced massive tariffs on over 180 countries—54% on China, 20% on the EU, 46% on Vietnam—sending markets into freefall. The S&P 500 dropped more than 10% in three days.
Then, just one week later, Trump hit pause on most of those tariffs, reducing them to 10% for a 90-day negotiation period. Markets exploded higher, recovering all their losses within weeks.
This pattern repeated throughout 2025. NBC News documented at least ten separate instances where Trump threatened tariffs, only to delay, reduce, or abandon them. Each time, savvy traders who bought during the panic-driven dips profited handsomely when the president backed down and markets recovered.
The strategy is straightforward: when Trump announces aggressive tariffs or geopolitical threats, wait for the inevitable market sell-off, then buy assets at discounted prices. When Trump reverses course (which he typically does), ride the relief rally for quick gains.
But here’s the key insight for new traders: this pattern seems to occur because Trump appears highly sensitive to stock market performance. When his threats cause significant pain—like the S&P 500 falling toward 6,500 or the 10-year Treasury yield spiking above 4.5%—historical evidence suggests he’s more likely to pivot toward de-escalation.
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What Does This Mean for Markets?
The Greenland episode demonstrates several important market dynamics that traders should understand.
Market psychology matters as much as fundamentals. Tuesday’s 2.1% drop in the S&P 500 wasn’t driven by changes in corporate earnings or economic data—it was pure fear about potential trade war implications. Wednesday’s 1.16% gain likewise had nothing to do with company performance. Investor sentiment shifted entirely based on one Truth Social post.
Credibility affects future market reactions. Some analysts warn that the TACO trade’s success might be creating its own problem. If traders consistently bet on Trump backing down, he may feel pressure to follow through on threats to maintain credibility—potentially breaking the pattern.
Volatility creates opportunities and risks. The VIX volatility index spiked to over 20 over the five days surrounding the Greenland threats. For experienced traders with proper risk management, volatility creates profit opportunities. For beginners using high leverage or poor position sizing during these conditions can be devastating.
Safe-haven assets may be telling a deeper story. While stocks rebounded sharply, gold prices remained elevated and didn’t see major selling. This suggests some investors remain cautious about keeping “safety elements” in their portfolios.
The Bottom Line: Key Takeaways for Traders
Patterns aren’t guarantees. The TACO trade has worked repeatedly, but past performance never guarantees future results. Each situation involves different variables. The October 2025 China rare earth minerals episode showed the pattern can break when Trump faces constraints from other countries rather than self-imposed deadlines.
Presidential rhetoric moves markets. In the modern era of social media and instant communication, a single Truth Social post can swing major indexes by 1-2% in minutes. New traders must understand that geopolitical headlines can overwhelm fundamental analysis in the short term.
Context is critical. Early TACO trades worked partly because Trump controlled the situation entirely. When external factors constrain his options (like the pending Supreme Court ruling on his tariff authority), the dynamic changes.
Risk management is non-negotiable. Whether you’re expecting the TACO pattern continuing or breaking, position sizing and stop losses are essential. The crypto market saw $19 billion in liquidations during the October 2025 tariff episode—a stark reminder that leverage amplifies losses as much as gains.
Multiple factors drive outcomes. While Trump’s sensitivity to market reactions appears significant, the Greenland de-escalation likely involved multiple considerations: NATO alliance pressures, European pushback, domestic political concerns, and legal constraints. Markets rarely move for just one reason.
What to Watch Next
The framework deal is far from finalized. Key dates and developments to monitor include:
February 1, 2026 was the original tariff implementation date. Even though Trump called them off, watching whether tensions re-emerge around this timeframe could signal whether the de-escalation is durable.
Congressional “Golden Dome” funding discussions will reveal whether the Greenland framework involves significant U.S. financial commitments that could face domestic political resistance.
Supreme Court ruling on tariff authority could fundamentally alter Trump’s ability to impose duties without Congressional approval, potentially changing the entire TACO trade dynamic.
NATO formal treaty signing expected later in spring 2026 will provide actual details about what the “framework” entails and whether it satisfies all parties.
European response and follow-through will indicate whether this was truly a resolution or just a temporary pause in tensions.
For new traders, the lesson isn’t necessarily to bet on TACO continuing or breaking. It’s to understand that modern markets increasingly price in “presidential volatility” as a regular factor, that patterns exist but can change, and that emotional discipline and risk management matter more than trying to predict every twist and turn of geopolitical theater.
Markets may have rallied on Wednesday, but common sense and history suggests the footing remains “as fragile as the ice” Trump sought to acquire.
