Geopolitical tensions plunge market sentiment, VIX index soars to two-month high.

On Tuesday, as investors' anxiety resurfaced, market volatility once again became the focus. The important indicator measuring the expected market volatility, the Cboe Volatility Index (VIX), broke through the key level of 20, rising to the highest level in nearly two months, indicating a noticeable shift in market risk preference. This index, known as the "fear index," has surged significantly since the end of last week, with an accumulated increase of nearly 28%, currently hovering around 20.69, signaling the end of a relatively calm period in the market since the beginning of the year. The core reason for this surge in volatility is the re-escalation of geopolitical uncertainties. Paul Stanley, Chief Investment Officer of Granite Bay Wealth Management, stated: "The main risk facing the stock market is geopolitical tensions. Although the stock market has not yet significantly responded to the geopolitical tensions that have occurred since 2026, these headlines are important reminders that geopolitical factors may become dominant at any time, so investors should always be prepared for headline-driven volatility." On January 17, local time, Trump announced on social media that tariffs of 10% would be imposed on goods imported from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland starting from February 1, and he claimed that the tariff rate would increase to 25% from June 1 until an agreement is reached on the US's "full and thorough purchase of Greenland. On January 18, the European Union held an emergency meeting to discuss the feasibility of retaliation measures. One of the proposals is the use of the counter-coercion tool. This is the EU's "trade rocket launcher," which can freeze the access of relevant parties to the European market, block some investment activities, etc. This tool has never been used since it came into effect at the end of 2023. French President Emmanuel Macron and the European Parliament's European People's Party recently suggested using this tool to deal with pressure. Another proposal is to restart a tariff list, which would impose tariffs on US goods imported into Europe worth 930 billion. According to reports, this list was put on hold after the US-EU trade agreement reached in July last year. Manfred Weber, Chairman of the European People's Party, the largest party group in the European Parliament, stated that due to threats from the US, it is impossible to approve the EU-US trade agreement, and the zero tariff policy towards the US must be suspended. Reports indicate that European officials plan to wait until February 1 to see if the US really imposes tariffs before deciding whether to implement retaliation measures. In addition, the process for starting the counter-coercion tool is complex and lengthy, and there are doubts about whether it can be implemented. Media reports quote informed sources as saying that the EU still prioritizes diplomatic solutions over retaliatory measures. On January 20, Trump stated that his goal of controlling Greenland "will never change," and he refused to rule out the possibility of using force to take over Greenland. In addition, when asked by reporters if an unfavorable Supreme Court ruling on tariffs would affect US security policy towards Greenland, Trump said that if the current tariff tools are restricted, he "can use other methods," such as through a "licensing system." He emphasized that the method currently being used is "the best, the strongest, the fastest, the simplest, and the least complicated," but not the only option. The controversial move by the US on Greenland has intensified diplomatic tensions and further shaken investor confidence. On Tuesday, all three major US stock indices closed down, with the Dow Jones Industrial Average falling by 1.76%, the S&P 500 falling by 2.06%, and the Nasdaq falling by 2.39%. Meanwhile, the US dollar and US bond yields both tumbled, with the US Dollar Index falling by nearly 1% over the past two trading days. Furthermore, due to concerns about Trump reintroducing trade risks to the global market, investors have turned to safe-haven assets, with gold and silver reaching new highs. As of the time of writing, spot gold rose by 0.4% to $4783 per ounce, while spot silver rose by 0.7% to $95.28 per ounce. Although investor sentiment was clearly dampened on Tuesday, the question the market is considering is whether the Greenland incident was just a reflexive sell-off or will have a longer-term impact on the market. Jamie Cox, Managing Partner of Harris Financial Group, stated that he has not seen signs of mass exodus by investors. He said, "I am not willing to assert at this time that the events surrounding Greenland and the repeated threats of tariffs will trigger a market correction." He added that he would be surprised if there was a 3% to 5% decline this week.