Wall Street Brief (January 21): US stocks suffered the worst sell-off since October, with market panic sentiment surging but without a stampede; Bitcoin plummeted / Gold hit a new high

[Summary] US stocks saw the worst sell-off on Tuesday since October, with the S&P 500 down 2.06%, Nasdaq falling 2.39%, and Dow Jones dropping 1.76%. The Russell 2000 small-cap index fell 1.21%, showing more resilience compared to large-cap stocks. Amid escalating geopolitical tensions over Greenland between the US and Europe, the VIX panic index surged. Market breadth showed broad selling, but it hasn't yet turned into a stampede. Significant divergence in major asset classes: Gold surged 1.95% to $4,763, hitting a new all-time high driven by safe-haven buying; crude oil rose slightly by 0.51%; Bitcoin dropped 4.54% to $88,427; the US dollar index fell 0.5%.

I. Major Events

1. Tariff threats re-emerge as US-EU relations deteriorate sharply

On January 17, Trump announced a 10% tariff on eight countries including Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland, effective February 1, increasing to 25% on June 1. Yesterday, Trump also announced a 200% tariff on French wine and champagne in retaliation for Macron's refusal to join his proposed Gaza 'peace committee.' European Commission President von der Leyen criticized the move as 'wrong,' and the EU is discussing retaliatory tariffs on $108 billion worth of US products. Shares of French alcohol giants LVMH and Remy Cointreau fell 2%. Amid this round of escalated tariff threats, the US dollar and Treasuries weakened simultaneously, while safe-haven funds moved to gold, pushing prices to a new all-time high.

2. US stocks recorded the largest drop since October, with the VIX panic index soaring 27%

All three indices tumbled, with the S&P 500 and Nasdaq turning negative year-to-date. The VIX panic index surged to 20.09, back above the 20 threshold. In just two days, it rose from 15.86 to 20.09, an increase of about 27%. The sudden deterioration in market sentiment mainly stemmed from two factors: the sharp rise in tariff uncertainty and the repricing of corporate earnings expectations. LPL Research lowered its S&P 500 earnings forecast from $310 to $290. 3M warned that tariffs could cut its 2026 earnings by $60 million, causing its shares to plunge 6.96%.

3. Bitcoin fell below $89,000, with the crypto market losing over $100 billion

Bitcoin dropped nearly $4,000 within 24 hours to around $88,400, triggering over $800 million in leveraged long liquidations. Ethereum fell 4.9%, and Solana dropped 8.6%. The total market cap of the crypto market lost approximately $100 billion. Bitcoin has retreated about 30% from its all-time high of $126,000 in October 2025.

II. Major Trends

1. Small-cap stocks show relative resilience

Despite widespread declines in major indices, the Russell 2000 (IWM) fell 1.20%, less than the S&P 500 (SPY)’s 2.04% and Nasdaq 100 (QQQ)’s 2.12%. Over a two-week period, IWM still gained 5.37%, with a cumulative three-month rise of 7.29%, continuing to outperform the broader market.

2. Defensive attributes of value stocks stand out

In this round of correction, the value style continued to outperform. Over a three-month period, SPYV rose by 6.63%, while SPYG declined by 0.30%, with value outpacing growth by nearly 7 percentage points. Industrial stocks (DIA) increased by 7.19% over three months, whereas tech stocks (QQQ) only rose by 4.16%, indicating continued capital inflows into 'old economy' sectors.

3. Capital flows shift from large caps to mid-caps

M7 saw a full decline on the day. From a three-month trend perspective, small-cap stocks (IWM) rose 7.29%, significantly outperforming large-cap stocks (SPY) at 4.94%. The market rotation trend from leading stocks to smaller and mid-cap stocks remains intact during this adjustment.

III. Market Sentiment

Panic sentiment suddenly intensified. The VIX fear index surged to 20.09, breaking back above the 20 threshold. Rising from 15.86 to 20.09 in just two days, it marked an increase of about 27%. As an indicator measuring expectations of future market volatility, a rapid rise in the VIX typically signals that investors are more inclined to buy protection and reduce risk exposure. In the day’s trading, tariff escalations and downward revisions in earnings forecasts jointly suppressed risk appetite. The CNN Fear & Greed Index fell from 55 to 48, dropping 7 points in a single day, moving from the “greed” range into the “neutral” zone, showing a faster and more concentrated cooling of sentiment.

Market breadth indicates selling was relatively broad but hasn’t yet escalated into uncontrollable panic selling. The NYSE Decline/Advance ratio was 1.19:1, and the Nasdaq Decline/Advance ratio stood at 1.34:1. More stocks fell than rose, but the ratios haven’t reached extreme levels indicative of 'widespread panic selling.'

IV. Market Scan

1. Index ETFs

All four major index ETFs dropped. The Russell 2000 ETF (IWM) fell 1.20%, the smallest decline, while the Nasdaq 100 ETF (QQQ) led the losses with a 2.12% drop. The S&P 500 ETF (SPY) fell 2.04%, and the Dow ETF (DIA) dropped 1.73%. Small-cap stocks showed relative resilience, continuing their recent strong performance. QQQ, which has higher exposure to technology, faced more pronounced pressure amid sector weakness.

2. Industry Sectors

Consumer Staples (XLP) rose 0.30%, becoming the only sector to close in positive territory as its defensive characteristics stood out in the risk-off environment. Technology (XLK) and Consumer Discretionary (XLY) both plunged 2.60%, weighed down by semiconductor tariff concerns and Tesla's weakness. Financials (XLF) dropped 2.28%, squeezed between rising long-term interest rates and economic worries. Industrials (XLI) fell 2.02%, with multinational industrial companies being more sensitive to tariff changes. Real Estate (XLRE) declined 1.92%, Communication Services (XLC) dropped 1.48%, and Materials (XLB) fell 1.01%.

3. Seven Major Tech Stocks

The M7 tech giants all retreated. NVIDIA (NVDA) led the declines with a 4.38% drop, pressured by semiconductor tariff concerns and high valuation. Tesla (TSLA) fell 4.17%, with its heavier tilt towards 'Consumer Discretionary' making its stock more sensitive to changes in economic expectations. Apple (AAPL) dropped 3.46%, amid growing concerns over tariffs related to its supply chain. Meta (META) fell 2.60%, and Google (GOOG) dropped 2.48%, following the broader market correction. Netflix (NFLX) fell 0.84%, showing relative resilience, with its subscription-based business model demonstrating strength during volatility.

4. Chinese概念股

Chinese stocks showed clear divergence. Baidu (BIDU) gained 0.33%, closing in positive territory against the trend, supported by robust AI concepts and search business. Bilibili (BILI) plummeted 6.80%, leading the declines, as growth-oriented Chinese stocks came under heavier pressure in risk-off trading. Tencent Music (TME) fell 2.23%, PDD Holdings (PDD) dropped 2.15%, and the China Internet ETF (KWEB) fell 2.07%, weakening along with the overall decline in market risk appetite.

5. Cryptocurrencies and related stocks

Bitcoin's latest price was around $88,427, retreating 4.54%. Amid waning risk appetite, leveraged long positions worth over $800 million were liquidated, with continued outflows from spot ETFs. Mining stock MARA (MARA) plunged 8.71%, despite the company advancing its transition to AI data centers, as its share price remains highly correlated with Bitcoin. Palantir (PLTR) dropped 1.42%, but government contract business provided some fundamental support even as tech stocks faced broad pressure.

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