In the Markets Now: Selloff Summary for January 20, 2026

Equity markets fell on Tuesday as geopolitical tensions ramped up and global bond yields spiked.

What Happened?

The S&P 500 fell 2.1% on Tuesday January 20, its worst day since Oct. 2025. The index now finds itself just 2.6% below the all-time high set on Jan. 12, 2026. Large Cap, Tech-adjacent names were hit the hardest, while U.S. Small Caps actually held up better.

Why Did It Happen? What’s Next?

Geopolitics. President Trump announced eight European nations would face 10% tariff starting Feb. 1 (escalating to 25% Jun. 1) if Greenland is not sold to the United States. The immediate fear is a re-escalation of tensions with a major trading partner. If new/punitive tariffs are imposed, the European Union could retaliate with its “Anti-Coercion Instrument,” an all-purpose (as yet unused) tool meant to deter countries from using economic coercion to win concessions in other areas. Utilization could include new tariffs, restrictions on intellectual property rights, and limited access to EU markets. This would represent a meaningful step-up in tensions, and has contributed to the “Sell America” trade seen today (U.S. Treasurys, U.S. stocks, U.S. dollar all lower).

Yields. Greenland / EU tension is being exacerbated by a big rise in Japanese Government Bond (JGB) yields. The yield on the 40-year bond surged through 4% for the first time, while 30-year yields also rose significantly on concerns that tax cuts being promoted ahead of a February snap election will test the country’s already-strained finances (a bond auction for 20-year JGBs saw weak demand Tuesday, reflecting investor worries over the fiscal situation). For global investors, this matters because Japan's ultra-low bond yields have long acted as a funding source for carry trades (e.g., borrow cheaply in Japan and invest in higher yielding assets, like U.S. tech stocks). A sharp rise in JGB yields can cause selloffs in foreign assets as these trades unwind, as was partly the case during the August 2024 stock market selloff.

Complacency. Most sharp stock market reversals are worsened by investor complacency and wrongfooted positioning. That is to say, when everyone is on the same side of the boat, it’s easier to tip over. Investor sentiment has been increasingly bullish in recent months, and by many metrics, investors are as overweight stocks as they’ve been in some time. This creates an imbalance that can amplify selloffs once the fuse is lit.

Perspective. Chris Verrone at Strategas (a Baird company): “(Last) week ended with ~70% of S&P 500 stocks above their 200-day moving average, credit spreads near their tights, the Russell 2000 (small caps) and Equal-Weight S&P 500 at fresh highs, Industrials still leading, and most global markets in uptrends… not the backdrop we’d expect to see ahead of a major top. Nothing prevents a consolidation here, particularly with sentiment so one-sided and ripe for a check , but we still defer to the longer-term trend for perspective."

Final thought. One role of financial markets is to act as an arbiter for policymaking – markets can be powerful and real-time feedback mechanisms that keep checks on policymakers. Selloffs and volatility (particularly higher bond yields) send a loud and meaningful message. Policymakers can, and often do, ignore the message for a time, but no administration has an unlimited tolerance for financial pain (as we saw in April 2025). Volatility may persist for a time, but the backdrop is still a positive one for risk assets overall.

Disclosures

This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

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