What Happened
The market story ran in two beats across Jan 17–22, 2026.
On Saturday, Jan 17, Reuters reported that President Trump vowed new tariffs on eight European nations tied to Greenland. Headlines like that often raise the “policy risk” premium (extra price swing people demand when rules may change fast).
By Thursday, Jan 22, Reuters reported Trump withdrew the tariff threats and also ruled out using force to claim Greenland. European stocks rebounded: the pan-European STOXX 600 was up about 1.2% early in the session, and Reuters noted autos and telecoms leading gains.
Other coverage showed the move was broad, not narrow. The Guardian reported that on Jan 22 Germany’s DAX rose 1.28%, France’s CAC 40 rose close to 1%, and the STOXX 600 rose 1.1% after the tariff walk-back.
U.S. stocks also climbed on Jan 22. The Associated Press reported the S&P 500 up about 0.8%, the Dow up 1%, and the Nasdaq up 1.1% as markets recovered from the earlier tariff shock.
The rebound was not just “price up.” Reuters noted that the eurozone’s equity volatility gauge fell for a second straight session by Jan 22, which fits with a drop in near-term fear after the policy reversal.
What Can Explain It
A reversal like this can look bigger than the headline because of how trading actually happens.
Spreads can tighten fast. The bid-ask spread is the small gap between the best buy price and the best sell price. When news raises uncertainty, market makers often widen that gap to protect themselves from sudden moves. When the risk headline cools, spreads can shrink. A smaller spread lowers the “friction” of trading, so more trades go through at once. That can make the bounce feel quick and broad.
“Paused” big orders can start filling again. Large investors rarely buy in one click. They often use execution algorithms (software that breaks a big order into many small trades) to reduce market impact. In a scare window, those programs may slow down or wait for calmer pricing. When uncertainty drops—like after Jan 22 reports—those same programs can resume at a more normal pace. That can add steady buying pressure even if no one changed their long-run view overnight.
Liquidity returns in layers. Liquidity means “how easily you can trade without moving the price.” During a policy scare, liquidity can thin out because fewer traders want to be first to quote a firm price. When the scare fades, liquidity often returns in layers: first the tightest spreads, then deeper order books (more shares available at nearby prices). When both improve, indexes can rise with fewer air pockets.
Hedging can move the market, too. Options are contracts tied to future price moves. Dealers who make options markets often hedge by buying or selling the underlying index. When volatility drops—Reuters noted a decline by Jan 22—some hedges can be adjusted. That can add to the move without needing a new fundamental catalyst. This is not a claim that hedging “drove” the day; it is a common mechanical feature that can amplify reversals when fear eases.
Why That Framing Matters
This framing helps separate information from market plumbing.
The information piece is simple: markets reacted to a trade-war risk rising (Jan 17) and then falling (Jan 22).
The plumbing piece explains why the rebound can look stronger than expected: tighter spreads, returning liquidity, and the restart of delayed execution can all compress a lot of trading into a short window.
It also explains why early moves can look “everything up at once.” When spreads tighten and index liquidity improves, broad baskets can lift together. Reuters’ note that autos and telecoms led in Europe is consistent with a risk-on unwind where cyclicals and higher-beta groups often respond first.
Finally, this lens avoids over-claiming. Even Reuters warned that risks can persist because policy can shift again quickly; a relief rally is not the same thing as a clear policy path.
Bottom Line
Across Jan 17–22, 2026, markets repriced a Greenland-linked tariff threat and then repriced its removal. Coverage from Reuters, the Guardian, and the AP showed a broad rebound across Europe and the U.S. once the walk-back hit the tape.
The “sudden and broad” feel can be consistent with microstructure: spreads shrink, delayed institutional orders get filled, and hedges adjust as volatility cools. That combination can make a policy reversal look like a clean relief wave, even when the underlying story remains politically fluid.
