NEW YORK, Jan 21, 2026, 15:28 EST
- The VIX dipped back under 20 on Wednesday, easing off a sharp jump the previous day driven by concerns over tariffs.
- Trump said tariffs scheduled for Feb. 1 would be dropped after a preliminary deal with NATO over Greenland’s future.
- Investors are split on whether the recent swings will die down soon or trigger a prolonged period of volatility.
Volatility eased on Wall Street Wednesday as the VIX slipped under 20, easing more than 8% to close at 18.43. Stocks pushed higher, with the S&P 500 up about 0.5% in afternoon trading, buoyed after President Donald Trump ruled out using force to acquire Greenland. “The market bounced when he said we wouldn’t use force,” said Mark Hackett, chief market strategist at Nationwide. 1
The VIX, or Cboe Volatility Index, measures expected short-term swings in the S&P 500 based on option prices. When the VIX spikes, it means investors are paying up for protection, bracing for choppier markets. 2
This is crucial now as markets have leaned on a calm, low-volatility backdrop, even with geopolitical tensions and trade threats simmering. A sudden jump in hedging costs can quickly shake equity and currency markets—and options tend to react first.
Tuesday’s selloff swept through nearly every sector: the S&P 500 plunged 2.06% to 6,796.86, the Nasdaq dropped 2.39%, and the Dow fell 1.76%, marking their steepest single-day falls in three months. The VIX spiked to 20.09, closing at its highest since Nov. 24. The slide followed Trump’s move to impose 10% tariffs starting Feb. 1 on imports from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and Britain—rising to 25% on June 1 if Greenland isn’t included in the negotiations. Gold surged to new highs while bitcoin slipped more than 3%. Jamie Cox of Harris Financial Group said he hasn’t seen signs of investors retreating yet. 3
On Wednesday, Trump backtracked, saying he won’t impose the tariffs planned for Feb. 1. He pointed to an “outline agreement” with NATO about Greenland’s future as the reason. Trump said he nailed down the details after meeting NATO Secretary General Mark Rutte in Davos but offered no concrete information. 4
Volatility surged sharply Tuesday, with the VIX jumping 1.9 points to an eight-week high of 20.69 as stocks, long-term Treasuries, and the dollar all slipped. Jim Carroll, senior wealth adviser at Ballast Rock Private Wealth, called it “a very significant shift,” stopping short of calling it “hair on fire.” Alex Morris from F/m Investments pointed out that panic usually sets in when the VIX nears 30. The dollar dropped 0.6% against a currency basket, while implied volatility on the euro for one month climbed to 6.03%. Michael Brown of Pepperstone said these moves “feel more severe” after a lengthy calm spell. 5
European shares erased earlier losses to end the day flat after Trump softened his stance on Greenland during talks at Davos, though trade concerns still loomed. UBS strategist Sutanya Chedda said she’s concentrating on sectors with lower international exposure and more resilient domestic demand. 6
The relief may prove fleeting. Investors still grapple with whether Washington’s tariff threats are merely bargaining chips or signal a real policy shift, and any news could swiftly reverse the trade.
Traders are zeroing in on upcoming U.S. economic data and earnings reports to see if Tuesday’s selloff was a one-off or the start of a trend. Any unexpected moves in growth, inflation, or policy could swiftly shift focus back to the VIX.
Stocks have found some footing, with volatility dialing back. The big issue: can the political tensions stay muted long enough to shake investors out of their worst-case mindset?
