Weekly Economic Update: January 27th 2025
Markets go for wild ride after Greenland dust-up
We were greeted with an ugly little sell-off on Tuesday, and the markets had a horrible day to start the holiday-shortened week.1 The Dow closed down 870 points (-1.80%), the S&P 500 lost 143 points (-2.1%) and the Nasdaq lost 561 points (-2.4%).2,3,4
The sell-off came after President Donald Trump doubled down on demands that Denmark sell us Greenland for national security reasons and said we would be Greenland’s new owners one way or the other.5 In response, some EU and/or NATO countries (France, Germany, Sweden, Norway, Finland, the Netherlands and, of course, Denmark) announced they were sending or had already sent troops to Greenland in a show of support for Denmark and to defy Trump.6
In response, Trump announced new tariffs on these countries plus the UK. The tariffs were to be an extra 10% on goods originating from those countries starting Feb. 1 and rising to 25% if a deal on Greenland wasn’t reached.
After a couple days of what seemed like a scene out of “Dr. Strangelove” or an “Austin Powers” movie, Trump took the stage at the World Economic Forum (WEF) in Davos, Switzerland, and softened his tone. Later in the day, he announced a “framework” had been agreed upon and that the threatened tariffs wouldn’t go into effect as previously announced.7
The markets welcomed the news and bounced back, regaining most of Monday’s losses in a mini version of a “liberation day” rally from last April. We faded somewhat on Friday as consumer confidence remained the same, but once again we found ourselves on the doorstep of 50,000 on the Dow and 7,000 for the S&P 500.
The 10-year U.S. Treasury, which has spiked to a yield of nearly 4.30%, eased back down by the end of the week.8 Volatility, as measured by the VIX, shot up nearly 25% (from 15.86 to 20.09) during the height of the dust-up, then settled back down to the prior week’s levels, almost as if the whole Greenland thing didn’t happen.9
This January has been a wild ride. There have been a lot of ups and downs, but we haven’t really gone anywhere. Markets are virtually at the same levels as the start of the year, and it looks like we may not get the strong January that would indicate a strong rest of the year.
Q3 GDP, (maybe) another shutdown and the Supreme Court
There’s been a lot of wild stuff happening this month, including the Venezuela raid, protests both home and abroad, a ruling from the Supreme Court on tariffs and criminal investigations of the Federal Reserve. Now we’ve arrived at the end of the month, and the government is dragging its feet about another shutdown.
Congress has made a bit of progress, with the House advancing a series of bills to the Senate. These bills need to be voted on and passed before this coming Friday to avoid a partial shutdown. The major hang-up is funding for the Department of Homeland Security (DHS), which includes funding for Immigration and Customs Enforcement (ICE).10
ICE activities have become a political lightning rod that has found its way into discussions over government funding. Hopefully, it doesn’t derail the passage of these bills, and we can avoid another shutdown. Last October and November were not a good outcome for anyone, and that shutdown may have cut fourth-quarter gross domestic product (GDP) by as much as 1%.
Speaking of GDP, the final reading for the third quarter was revised upward to 4.4%, which is pretty strong but happened before the shutdown.11 According to the Atlanta Fed GDPNow™ model, the fourth-quarter estimate (due out on Feb. 20) is 5.4%.12 If we can keep the momentum going, 2026 should be a solid year for the economy. But if we commit unforced errors like shutting down the government or pursue other distractions, we might let a “golden” opportunity for a fourth consecutive positive year in the markets slip through our fingers.
Coming this week
- The first Fed meeting of 2026 will begin on Tuesday. As of last Friday, there was a 97% chance that the Fed Funds rate would remain at 3.75% when the meeting concludes on Wednesday.13
- We won’t see much data in the early part of the week, other than consumer confidence on Tuesday. Then again, data isn’t what’s been whipping the markets around in January.
- Wednesday and Thursday will feature MBA mortgage applications, weekly unemployment claims, productivity, wholesale inventories and factory orders. One important note: We touched 200,000 again in new unemployment claims. This isn’t dire but is psychologically important. We’ve been at or over 200,000 two out of the first three weeks this month. (Last week’s report was 199,000, so we might as well count that week, too.)
- Finally, we’ll end the month with the latest producer price index (PPI) numbers.
- We need to be mindful of what’s going on in Washington with a potential shutdown, which could indicate the next train wreck for markets in the near term.
- Fourth-quarter 2025 earnings season is here.14 As of Jan. 23, 13% of S&P 500 companies had reported actual results, with 75% reporting positive earnings per share (EPS) and 69% reporting positive revenue. Earnings growth for the quarter is 8.2% so far, down from 11.8% last quarter. For the current quarter, six S&P 500 companies have issued negative EPS guidance, while four companies have issued positive. Valuation is still historically high for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 22.1 versus 22.7 last quarter.
Sources:
1 Chibuike Oguh and Elizabeth Howcroft. Reuters. Jan. 20, 2026. “Widespread selloff hits stocks as Trump’s threats over Greenland unnerve investors.” https://www.reuters.com/world/china/global-markets-wrapup-1-2026-01-20/. Accessed Jan. 25, 2026.
2 Yahoo! Finance. “Dow Jones Industrial Average (ˆDJI).” https://finance.yahoo.com/quote/%5EDJI/. Accessed Jan. 25, 2026.
3 Yahoo! Finance. “S&P 500 (ˆGSPC).” https://finance.yahoo.com/quote/%5EGSPC/. Accessed Jan. 25, 2026.
4 Yahoo! Finance. “NASDAQ Composite (ˆIXIC).” https://finance.yahoo.com/quote/%5EIXIC/. Accessed Jan. 25, 2026.
5 Associated Press. Jan. 12, 2026. “Trump says US will ‘have’ Greenland ‘one way or the other.’” https://www.youtube.com/watch?v=GBoaWHaS7Ys. Accessed Jan. 25, 2026.
6 Tom Soufi Burridge, Charlotte Gardiner and Ivan Pereira. ABC News. Jan. 15, 2026. “France, other NATO countries send troops to Greenland for exercises after meeting with Vance and Rubio.” https://abcnews.go.com/Politics/france-nato-countries-send-troops-greenland-exercises-after/story?id=129241103. Accessed Jan. 25, 2026.
7 Kevin Breuninger. CNBC. Jan. 21, 2026. “Trump says he reached Greenland deal ‘framework’ with NATO, backs off Europe tariffs.” https://www.cnbc.com/2026/01/21/trump-tariffs-nato-greenland-davos.html. Accessed Jan. 25, 2026.
8 CNBC. “U.S. 10 Year Treasury.” https://www.cnbc.com/quotes/US10Y. Accessed Jan. 25, 2026.
9 Yahoo! Finance. “CBOE Volatility Index (ˆVIX).” https://finance.yahoo.com/quote/%5EVIX/. Accessed Jan. 25, 2026.
10 Garrett Downs. CNBC. Jan. 22, 2026. “House passes final funding bills 8 days before shutdown, Senate now will consider.” https://www.cnbc.com/2026/01/22/government-funding-shutdown-house.html. Accessed Jan. 25, 2026.
11 Bureau of Economic Analysis. Jan. 22, 2026. “Gross Domestic Product, 3rd Quarter 2025 (Updated Estimate), GDP by Industry, and Corporate Profits (Revised).” https://www.bea.gov/news/2026/gross-domestic-product-3rd-quarter-2025-updated-estimate-gdp-industry-and-corporate. Accessed Jan. 25, 2026.
12 Federal Reserve Bank of Atlanta. “GDPNow™.” https://www.atlantafed.org/cqer/research/gdpnow. Accessed Jan. 25, 2026.
13 CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed Jan. 25, 2026.
14 John Butters. FactSet. Jan. 23, 2026. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_012326.pdf. Accessed Jan. 25, 2026.
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