We build our portfolios to prepare for the unexpected. An abrupt market sell-off because of international tensions over Greenland would be a case in point — nobody was expecting this.
We’ve received a number of questions about these developments and want to share answers to the ones we’re hearing most often:
Why did the market sell-off over this dispute about Greenland? The market has been rattled by two primary factors:
- The threat of military force. Even if primarily intended as negotiating leverage, this threat underscores how the post-World War II rules-based international order, both military and economic, has been turned upside down by President Trump. While international treaties constantly shift and evolve, markets abhor uncertainty — and this is an uncertain moment.
- The return of tariffs. Last year’s market downturn in April demonstrated the serious negative impact tariffs can have on market sentiment. Markets sold off sharply when President Trump announced a barrage of new global tariffs on virtually every country. He later walked back or moderated many of those tariffs, and markets gradually recovered. so, it wasn’t surprising to see a reaction this week when tariffs came back on the table, including being threatened as a way to pressure Denmark to cede territorial control of Greenland to the United States.
We should note that once these threats were dialed back, the market quickly, although not entirely, recovered.
How significant is the sell-off?
The Dow Jones Industrial Average fell 870 points Tuesday, January 20. It’s worth noting in moments like this that big point sell-offs in the Dow aren’t what they used to be. At today’s market levels, an 870-point drop represents a decline of roughly 1.8%. That’s not to dismiss the market’s decline — merely to contextualize it.
Perhaps what is most significant about that performance is what also happened to U.S. treasuries, the dollar, and gold. Yields on 30-year U.S. treasury bonds jumped 8 basis points yesterday — a sizable daily move for a market that historically is known for only gradual change. The U.S. Dollar Index (DXY) —which is a basket of the currencies of the largest trading partners of the U.S. — dropped more than 0.8%. At the same time, gold prices soared almost 4% to a new all-time high.
Even as stocks partially bounced back once the threat was dialed back, bond yields and the dollar didn’t recover to the same extent.
Taken together, these performances point to potentially renewed investor concern about the outlook for the U.S. and its hegemonic status within the global economy and financial markets.
What is the market context for this sell-off?
Entering 2026, U.S. financial markets were priced for perfection. Valuations were (and remain) extremely lofty, economic growth expectations were sanguine, and the U.S. dollar showed signs of stabilization after falling sharply in the first half of last year. Against that backdrop, the news around Greenland over the weekend has been a reminder for investors that when markets are priced in such a manner, any development that runs counter to that outlook can lead to a rapid repricing of assets.
Given that expectations for markets remain lofty, there is the potential for more turbulence if geo-political developments continue to run counter to these expectations.
The other major market trend to bear in mind is the ongoing decline of the U.S. dollar (we have written previously about this topic). Over the past year, the dollar has declined by more than 10%. Some market commentators have even dubbed this decline the “Sell America” trade. Though perhaps a bit overwrought, the trend does reflect that many international investors are re-allocating away from the U.S. investments given the new uncertainties appearing in our outlook.
Are gold and silver a good hedge right now?
At Mercer Advisors, we have generally shied away from recommending investments in assets that don’t produce cash flows. As fiduciaries, we draw a clear distinction between speculative assets (like gold and crypto) and investment assets (like stocks, bonds, private equity, real estate, and more). With stocks, bonds, or private market investments, an investment is expected to generate a stream of profits or dividends or interest payments, which provides a basis for asset valuations relative to one another (and relative to risk-free assets such as short-term U.S. treasuries).
This is not the case with gold or silver, which are priced largely on short-term investor sentiment. These types of speculative assets tend to be more volatile than assets that are priced on fundamentals (i.e., cash flows or expected future cash flows). Recently, that volatility has been to the upside — helping generate strong returns for those that own these assets. But that volatility can just as easily (and unpredictably) shift to the downside when sentiment changes — resulting in meaningful drags on performance for investors.
So what should we do?
A few takeaways:
- Don’t let short-term market performance cause you to deviate from your long-term plan. Over shorter periods of time, market performance is volatile. Pullbacks can and will occur when uncertainty is rising and markets reprice their outlooks to account for that change. While those adjustments can be uncomfortable to experience, they’re also a natural part of financial markets. Over the long term, markets have risen much more consistently than they’ve declined, and investors that stay invested are most likely best positioned to capitalize on that dynamic.
- Utilize diversification to smooth out the ups and downs of your investment portfolio performance, both across and within asset classes. Over the past year, the importance of non-U.S. assets in portfolios — both as diversifiers and as outperformers — has been demonstrated repeatedly. These types of investments represent a claim on the future earnings of companies outside the U.S. and are therefore good things to own when the U.S. dollar is under pressure.
- Focus on building a Fortress Balance Sheet. There are many things in this world far beyond our control such as investors — markets, geopolitics, and the global economy, to name a few. Expending mental energy worrying about such things won’t help us make it to retirement, pass wealth to the next generation, or endow our favorite charity. But a far better use of our mental energy is to focus on things directly within our control.
One of those, and arguably the most important, is how we build, structure, and manage our balance sheets. By diversifying broadly, both within and across major global asset classes, and by holistically managing our balance sheets — to help minimize the impact of severe market declines; to capture tax opportunities; to protect us from things like identify theft, litigation, cognitive decline and more — then, and only then, can we position ourselves and our families to weather the unexpected and aim to achieve economic freedom.
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