NEW YORK, Jan 21, 2026, 15:28 EST
- The VIX slipped below 20 again Wednesday, retreating from a steep rise the day before fueled by tariff worries.
- Trump announced that tariffs set to begin Feb. 1 would be scrapped following a preliminary agreement with NATO regarding Greenland’s future.
- Investors are debating if these recent swings will quickly subside or spark a longer stretch of volatility.
Wall Street volatility took a step back on Wednesday as the VIX dropped below 20, with stocks climbing after President Donald Trump dismissed the idea of using force to acquire Greenland. The VIX fell more than 8%, settling at 18.43, while the S&P 500 gained roughly 0.5% in afternoon trading. “The market bounced when he said we wouldn’t use force,” noted Mark Hackett, chief market strategist at Nationwide. (Reuters)
The VIX, known officially as the Cboe Volatility Index, tracks anticipated short-term volatility in the S&P 500 through option pricing. A jump in the VIX suggests investors are shelling out more for hedges, gearing up for rougher market moves. (Cboe Global Markets)
This matters now because markets have been relying on a low-volatility environment, despite ongoing geopolitical tensions and trade threats. When hedging costs spike suddenly, it can ripple through equity positions and currency markets—and options usually catch the shift first.
Tuesday’s drop hit nearly every sector: the S&P 500 tumbled 2.06% to 6,796.86, the Nasdaq fell 2.39%, and the Dow lost 1.76%—their sharpest single-day declines in three months. The VIX surged to 20.09, marking its highest close since Nov. 24. The selloff followed Trump’s announcement that 10% tariffs on imports from Denmark, Norway, Sweden, France, Germany, the Netherlands, Finland, and Britain will take effect Feb. 1, jumping to 25% on June 1 if Greenland isn’t on the table. Gold hit fresh highs, while bitcoin dropped over 3%. Jamie Cox of Harris Financial Group noted he hasn’t yet seen signs of investors pulling back. (Reuters)
On Wednesday, Trump reversed his stance, announcing he would not go ahead with the tariffs set for Feb. 1, citing a so-called outline agreement with NATO regarding Greenland’s future. He claimed to have hammered out the details after a meeting with NATO Secretary General Mark Rutte in Davos, but didn’t provide any specifics. (Reuters)
Volatility spiked sharply Tuesday across markets: the VIX surged up to 1.9 points, hitting an eight-week peak at 20.69 as stocks, long-dated Treasuries, and the dollar tumbled. Jim Carroll, senior wealth adviser and portfolio manager at Ballast Rock Private Wealth, described it as “a very significant shift,” though not “hair on fire.” Alex Morris of F/m Investments noted markets typically don’t panic until the VIX nears 30. The dollar fell 0.6% against a basket of currencies, while one-month implied volatility on the euro rose to 6.03%. Pepperstone’s Michael Brown said these moves “feel more severe” after a prolonged calm period. (Reuters)
European shares pared earlier declines to finish flat after Trump eased his rhetoric on Greenland during Davos talks, but trade tensions kept a shadow over the session. UBS strategist Sutanya Chedda noted she’s focusing on sectors with less international exposure and stronger domestic ties. (Reuters)
The relief might not last. Investors remain uncertain if Washington’s tariff threats are just leverage or an actual policy direction, and news can quickly turn the trade on its head.
Traders are turning their attention to upcoming U.S. economic reports and the earnings schedule to gauge if Tuesday’s selloff was just a blip or something more serious. A surprise in growth, inflation, or policy could quickly refocus attention on the VIX.
Stocks have steadied for the moment, and volatility has eased. The key question now: will the political heat stay low long enough for markets to quit betting on the worst-case scenario?
