Greenland Brings Renewed Tariff Threats

Good morning investors,

Markets face a sharp reality check this morning as President Trump's escalating Greenland rhetoric transforms from headline noise into genuine trade war risk. Futures point to meaningful losses with the Dow set to shed over 700 points, yet the underlying market structure tells a far more constructive story than the overnight panic suggests. Small caps closed at record highs three consecutive sessions last week, cyclical sectors are dramatically outperforming mega cap tech, and earnings growth continues accelerating into a tenth consecutive quarter. This is not a market rolling over, it's a market rotating into broader participation while absorbing policy uncertainty.

S&P ($SPY ( ▲ 0.83% )) futures down 1.6%, Dow ($DIA ( ▲ 0.59% )) futures off 718 points, and Nasdaq ($QQQ ( ▲ 1.27% )) futures falling 1.8% as markets digest weekend tariff escalation. Trump's threatened 10% tariffs rising to 25% by June on eight NATO members opposing Greenland's sale, combined with 200% tariff threats on French wines, has European leaders warning of retaliatory measures reaching €93 billion.

Global bonds selling off in tandem with Japan's 40-year yield hitting record highs on fiscal concerns, U.S. 10-year Treasury yields climbing to 4.28%, and German Bunds moving higher across the curve. Gold and silver hitting fresh records tells the safe-haven story clearly.

Last week's modest pullback obscures the more important market development: regime change in leadership is accelerating. The S&P 500 shed 0.4% for the week, putting year to date gains at 1.4%, but that understates the transformation occurring beneath the surface.

Cyclical sectors are dominating 2026 so far. Industrials up 7.6%, materials up 7.2%, and energy up 6.8% while healthcare and technology lag. The Russell 2000 closed at record highs on each of the week's final three sessions, now up 8% year to date versus sub 2% for both the S&P and Nasdaq. The equal-weight S&P 500 hit record highs on January 13th.

This bifurcation between large cap tech and broader market leadership validates the rotation thesis I've maintained throughout. When bull markets wind down, leadership narrows and investors crowd into the same handful of bets. The opposite is happening now. Roughly two-thirds of stocks across all market caps are trading above their 200-day moving averages, well above historical norms. Breadth like that doesn't resemble a bubble waiting to burst.

The fiscal impulse is arriving faster than expected. Wells Fargo projects average tax refunds increasing 18% this year, from $3,167 to over $3,700, as retroactive tax cuts from the One Big Beautiful Bill Act flow through to households.

The double-barreled stimulus effect deserves attention. Workers will see both higher take home pay from adjusted withholding tables and larger refunds on 2025 taxes. That combination injects approximately $200 billion into the economy, potentially boosting annualized growth in the first half by half a percentage point. Front loaded fiscal stimulus into an already expanding economy supports the broadening thesis.

Fourth quarter reporting kicks into high gear this week with analysts expecting 8.2% year over year earnings growth for S&P 500 companies, marking the tenth consecutive quarter of expansion. TSMC's blowout results last week reinforced AI demand visibility, sending AMD up 8.2%, Intel surging 27%, and Broadcom adding 1.6%.

Netflix reports amid its dramatic bid for Warner Bros. Discovery's streaming assets, while Intel's results offer another read on AI infrastructure demand following the government's stake acquisition last August. Guidance matters enormously here as blockbuster results need forward confirmation to sustain sentiment.

Energy deserves attention as XLE approaches critical resistance at $48. A breakthrough targets $50 and potentially higher as the sector benefits from both geopolitical uncertainty and domestic energy policy tailwinds. Baker Hughes continues performing well with strong chart structure even without a major crude spike, suggesting fundamental strength in energy services.

Commercial real estate shows selective opportunity in asset-light models. CBRE's chart looks constructive as the company benefits from transaction recovery without the balance sheet exposure weighing on traditional real estate players.

On the quantum technology front, I'm watching Quantum eMotion Corp as cybersecurity applications for quantum random number generators gain relevance amid escalating digital security concerns. Early stage but the quantum-safe encryption thesis has long-term merit.

Trump speaks at Davos Wednesday morning, and tone matters enormously. Danish officials pulled out of their planned attendance after tariff threats, while the EU weighs $108 billion in retaliatory levies. The Supreme Court could rule as soon as next week on whether presidential tariff authority under the International Emergency Economic Powers Act stands, adding another variable.

My view: this volatility presents opportunity rather than signal. Policy uncertainty creates the dips that reward patient accumulation. The underlying earnings trajectory, fiscal stimulus, and broadening market participation all support constructive positioning through the noise.

The market's resilience through geopolitical chaos, Fed independence questions, and policy whiplash demonstrates underlying strength that headline readers miss. Global markets are diversifying rather than concentrating, with Japan, Brazil, China, and UK benchmarks nearly doubling U.S. returns year to date. That dispersion contradicts the bubble narrative since peak exuberance typically coincides with capital crowding into the dominant market.

I expect good performance over the next month if we navigate through Greenland volatility, though spring could bring consolidation if tech fails to mount a strong rebound. Position for continued small cap outperformance as the rotation has years to run. Cyclical exposure through energy and industrials captures the broadening growth theme while providing some insulation from trade war headlines hitting technology harder.

The first five trading days finished positive, historically a constructive omen. Those waiting for perfect clarity miss opportunities developing now.

As always, feel free to reach out with questions about positioning.

Best regards,

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.