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The main U.S. equity indexes tumbled at the opening bell after global stocks sold off overnight and trended lower into the closing bell on Tuesday. Investors, traders and speculators are weighing the global implications of a breakdown in the Japanese government bond market as well as President Donald Trump’s use of new tariffs to achieve his foreign policy goals, including the annexation of Greenland.
The Dow Jones Industrial Average declined 870 points, or 1.8%, to 48,488. The S&P 500 was down 2.1% at 6,796, and the Nasdaq Composite shed 2.4% to 22,954. The 10-year U.S. Treasury yield rose to 4.293% from 4.227% on Friday to hit its highest level since September.
The U.S. Dollar Index softened to 98.60 from 99.39. The Cboe Volatility Index (VIX) surged as high as 20.99 from 15.86 on Friday and settled at 20.68 as of the closing bell. A normal reading for the market’s “fear index” is between 12 and 20.
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“Headlines out of Washington partially overshadowed the start of earnings season,” E*TRADE from Morgan Stanley Managing Director Chris Larkin observes, “and this week is looking like it could be a similar story.”
Referring to upcoming decisions on whether Trump can fire Fed Governor Lisa Cook as well as the legality of his tariffs, Larkin notes that in addition to Greenland, “how things unfold at the Supreme Court could have more of an impact on market sentiment than corporate balance sheets.”
The year so far, he adds, has been defined by strength in small- and mid-cap stocks vs softness for tech stocks and rotation out of mega-cap leaders such as the Magnificent 7.
“But with stocks starting the week in a defensive posture,” Larkin says, “it could be a challenge for recent winners to maintain their momentum without some clarity on the political front.”
Small-cap stocks show resilience
The Russell 2000 Index was lower on Tuesday, but the main benchmark for small-cap stocks didn’t lose as much as its large-cap peers, and a now-familiar biotech name led the way once more.
ImmunityBio (IBRX) managed to maintain its momentum from last week, rising as much as 44.6% despite political headwinds.
IBRX, which is making rapid advancements with treatments for multiple cancers, added another $1 billion to its market cap after more than doubling its value from January 9 to January 16.
Indeed, the SPDR S&P Biotech ETF (XBI) – one of the best biotech ETFs to buy – reflected this small-cap outperformance again on Tuesday, rising 0.9%.
Large-cap stocks get hit
In fact, only consumer staples stocks eked out a collective gain as 10 of 11 S&P 500 sectors closed in the red. Consumer discretionary stocks and tech, as well as financial stocks and communication services were all down more than 2%.
3M (MMM, -6.9%) saw the biggest percentage drop among the Dow stocks. Amazon.com (AMZN), Nvidia (NVDA), Apple (AAPL) and Salesforce (CRM) were all down at least 3%.
“A material correction is underway, with stocks, bonds, the dollar, and crypto lower,” Louis Navellier of Navellier & Associates writes, noting that Trump threatened to place 10% tariffs on eight European Union countries that objected to Denmark selling Greenland to the U.S. on February 1 and to raise those rates to 25% in June if annexation is not in place by then.
Japan’s market gets crazy
“When political headlines clash, it is often difficult to tell which one has greater impact,” writes Wells Fargo Investment Institute Head of Global Investment Strategy Paul Christopher of recent price action. “For perspective, the proposed U.S. tariffs on Europe amount to only $37 billion per year, and we expect a deal to be reached.”
Christopher turns his attention to Japan, where Prime Minister Sanae Takaichi announced plans to cut taxes and increase spending. As Kiplinger’s Rodrigo Sermeno writes, Japan is at the brink of a new era of risk and reform.
But, as Christopher notes, investors seem unwilling to finance it, and they’re selling Japanese government bonds. And “higher global government bond yields appear to be the main driver” of Tuesday’s sell-off.
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“We have seen similar problems in France and even Germany during the past year (though not to this scale of investor pushback),” he adds. The yield on the 10-year German bund rose more than the 10-year U.S. Treasury yield overnight, as investors scrutinize government budgets in Europe, too.
“Our conviction remains that political headlines are very unlikely to change the positive fundamental trends already in place,” Christopher concludes. He expects the global economy – “especially the U.S.” – to grow faster this year.
“Since April 2025,” he recounts, “we have seen repeated tariff threats and counter-threats that ultimately have proven to be the opening bids in negotiations that have brought compromise.”
