Greenland, gold, and bazookas

It’s only Tuesday, but we’ve already been bombarded with more geopolitical headlines over the last two days than our great grandparents heard in a lifetime.

Today, world leaders are assembling at Davos to wear fancy suits and take themselves very seriously. But the real headline—and talk of the town at the World Economic Forum—is President Trump’s threats to take over Greenland and his vow to inflict tariffs on countries that stand in his way.

Rising geopolitical tensions mean the “Sell America” trade is back once again: Stocks sank today, while bond prices fell and yields jumped. The dollar plummeted, while the euro rose against the dollar.

While the White House is trying to quell markets, the Street is freaking out. In fact, everyone seems to be panicking:

• Ray Dalio is forecasting a “capital war” in which investors flee US assets.
• A Danish pension fund already vowed to exit US treasuries.
• Trump is still throwing out more tariff threats than anyone can keep track of.

Gold keeps gleaming

The fog of the trade war has made markets jumpy, but gold, the king of uncertainty, has kept shining through the chaos. The commodity jumped 3.56% today—putting it on track for its biggest one-day rally since October as it climbed to a new record high, its 57th in the last 12 months.

This latest comeback is part of a larger trend: Over the past year, gold and gold-backed exchange-traded funds have exploded in popularity amid a new era of tariff uncertainty. While it’s tempting to pile all of your assets into gold and batten down the hatches, keep in mind that gold’s shine could easily dull if the dollar rises, Trump reverses his tariff policies, or if the geopolitical temperature cools.

Bringing a bazooka to a knife fight

So, how should investors be playing today’s tariff madness? First and foremost, beware the bazooka.

The so-called “trade bazooka” is the unofficial nickname for the Anti-Coercian Instrument (ACI), which was implemented in 2021 when the EU was figuring out a method to deter China from economic coercion in Lithuania.

Morgan Stanley Chief Equity Strategist Mike Wilson warned in a note today that, if fully implemented, the ACI would be a broad economic hit to the US, and would likely include tariffs, investment restrictions, and higher taxes on US assets and services. This would particularly hurt Big Tech, according to Wilson, because the ACI would likely limit Big Tech’s market access in Europe.

Wilson noted that small caps look a bit safer, including discretionary goods, regional banks, and biotech firms.

The big picture: Despite all of the chaos, there’s no need to panic. “While we are mindful of potential short-term volatility, we expect global equities to rise further and recommend under-allocated investors to add exposure,” explained Global Head of Equities at UBS Ulrike Hoffmann-Burchardi.—LB