US markets posted their worst day since October on Tuesday as President Trump threatened 10% tariffs on eight NATO allies over Greenland.

Over $1.2 trillion in market cap vanished from the S&P 500.
The VIX spiked to 20.69, the highest since late November.

The sell-off was broad. Tech led the decline:

Bonds sold off too:

This followed a bond sell-off in Japan that triggered a global debt market rout:

While large caps tanked, the Russell 2000 is up over 7% year-to-date, while the S&P 500 is roughly flat. The logic: domestic-focused companies are insulated from tariff risks that hit multinational giants.

Trump is in Davos this week, scheduled to meet with European leaders and deliver a keynote address.

Treasury Secretary Scott Bessent urged markets to "take a deep breath and let things play out.”

But the Supreme Court is weighing the legality of Trump's tariff authority under the International Emergency Economic Powers Act, with a ruling expected before June.

For now, investors are pricing risk.

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Hours before Trump announced the capture of Venezuelan President Nicolás Maduro on January 3rd, someone turned a $32,000 bet on Polymarket into $436,000.

The timing is suspicious enough to trigger a federal investigation, a new bill in Congress, and a debate about whether prediction markets are broken — or working exactly as intended.

For now, the mystery holds.

Either someone made the luckiest bet in prediction market history — or they had a phone call they shouldn't have had.

Markets will keep pricing in the odds.

Treasury Secretary Scott Bessent said at Davos that Trump could name Jerome Powell's replacement "as soon as next week."

After months of political theater, DOJ investigations, and public feuding over interest rates — the Fed chair pick is now a market event.

And it's happening fast.

The DOJ is investigating Powell over the Fed's $2.5 billion headquarters renovation.

The Fed is supposed to be independent.
Insulated from White House demands for rate cuts.

But Trump wants lower rates and Powell hasn't delivered.

The investigation creates pressure, though Powell's term ends in May anyway.

Kevin Warsh: Former Fed Governor. Hawkish on inflation, skeptical of political pressure. Prediction markets have him at 60%+.
When his odds rose, Treasury yields jumped.
Translation: slower cuts, higher rates for longer. Good for financials and banks. Bad for high-valuation growth stocks.

Kevin Hassett: Trump's National Economic Council director. Most dovish of the group. Wants rates down to 1-2%.
That's fuel for risk assets, M&A, and private equity exits.
Could also weaken the dollar if markets see the Fed as politically captured.

Christopher Waller — Current Fed Governor. Data-driven, flexible. Called for cuts but at a gradual pace. This is the continuity play.
Least disruptive to markets, slight dovish tilt. CEOs gave him 80% support at a Yale poll.

Michelle Bowman — Current Fed Governor, Vice Chair for Supervision. Dissented twice on rate cuts, preferring slower moves.
More hawkish. Just launched major bank deregulation.
If Trump picks her, it's a signal he's prioritizing deregulation over immediate rate relief.

Hassett means aggressive cuts and questions about Fed credibility.
Warsh means inflation discipline and slower easing.
Waller is the middle path.
Bowman is the outlier.

Whoever gets picked will set rate policy for years.
And markets are already pricing in the range.

10-year Treasury yields are sitting above 4.2%.
If Warsh gets it, expect them to stay elevated or climb.
If Hassett gets it, expect a dovish repricing and potential dollar weakness.

Either way, rate policy is about to shift. Next week might give us the answer.

Source: Stock Analysis

Imagine Trump and the EU are two kids on the playground with lunch boxes.

Trump wants to trade his sandwich for the EU's cookie (Greenland).

The EU says "No way, that's MY cookie."

So Trump says: "Fine. If you won't give me the cookie, I'm going to charge you a dollar every time you want to play with my toys (that's the tariff)."

Now the EU is mad. They might charge Trump a dollar to play with THEIR toys too.

And all the other kids watching (that's the stock market) get scared because if everyone starts fighting, nobody gets to play — and everyone's lunch gets ruined.

That's why the stock market dropped 800 points today.

Everyone's worried the playground fight is going to get worse.