Trump's TACO again—can the subsequent rebound in US stocks continue? What opportunities should be on the radar?

Yesterday's US stock market was a rollercoaster, with fierce intraday battles between bulls and bears.Major indices ultimately saw a significant rebound amid multiple macro events. As Trump made a dramatic turnaround on the Greenland issue at the Davos Forum, the market quickly priced in this positive development, leading to the classic 'TACO' rally, with capital flowing back into high-growth and policy-sensitive sectors.

$S&P 500 Index (.SPX.US)$ and $Nasdaq Composite Index (.IXIC.US)$ The indices rose by approximately 1.2%, while the most risk-sensitive sectors surged by 2%, leading the market. $Russell 2000 Index (.RUT.US)$ At the same time, safe-haven assets quickly cooled down. $XAU/USD (XAUUSD.CFD)$ Prices fell sharply from historical highs, dropping over 1% at one point.

1. Review of Yesterday's Market: The Davos 'TACO' Moment Ignites a Corrective Rally

Many investors are likely already aware of last night's volatility.It displayed clear timing and sector rotation characteristics.

The key driver of Wednesday's market was undoubtedly the impact of Trump announcing a 'future framework agreement' with NATO and canceling the planned tariff threat set to take effect on February 1, causing panic in the market to recede significantly.The tariff plan has been called off, and military options have also been ruled out.

Why the TACO? Some market observers believe it is related to the sale of US Treasuries by Danish pension funds，In the previous trading session, Akademiker Pension, a Danish pension fund, announced it had liquidated its holdings of US Treasuries, becoming the fourth Nordic pension fund to exit in recent months. Europe applied pressure through legal, low-intensity, and sustainable financial means, turning the Greenland issue from a 'geopolitical game' into a 'test of dollar credibility.' Currently, the marginal foreign demand for the US bond market is extremely elastic, and any minor change could be amplified by the market. If financial turbulence impacts Trump’s core narrative as a 'president of strong economic performance,' it would come at a cost unacceptable to his base.

However, it should also be noted that two factors caused the gains in US stocks to narrow during the session:

- Justices of the US Supreme Court were cautious about President Trumpattempting to fire Federal Reserve Governor Lisa Cook,believing that the dismissal could undermine the independence of the Federal Reserve and trigger market turmoil. This led to a collective narrowing of gains in the three major US stock indexes, which had risen more than 1% earlier in the day.

- The 'Hassett out' signal: Trump hinted that he wants Kevin Hassett, the Director of the National Economic Council, to remain in his current White House position, which was interpreted as him being out of the running for Fed Chair. He expressed a preference for a successor with a flexible style, boosting expectations for the nomination of the hawkish Kevin Warsh, leading to a drop in US stocks toward the end of trading.

In the 2025 case of Trump v. Wilcox (concerning members of the National Labor Relations Board),the Supreme Court ruled in favor of the president's removal power. However, the majority opinion of the ruling 'deliberately excluded the Federal Reserve', noting that the Federal Reserve is a 'uniquely structured, quasi-private entity.' The actual developments from yesterday’s hearing sent a strong signal that the Supreme Court may intend to uphold the independence of the Federal Reserve,and the Supreme Court’s ruling (or subsequent developments) could reinforce the Fed's 'distinctive' legal status.

II. With the worst-case scenario off the table, where will the market go next?

Yesterday’s developments at Davos essentially announced that --the greatest tail risk of 'military intervention' has been largely ruled out.Deutsche Bank had outlined several possible scenarios:

Scenario 1: A deal that meets key US interests (without compromising Greenland/Denmark sovereignty)

- Core: Greenland and Denmark cooperate in exchange for assurances regarding their sovereignty.

- Possible content:Restricting Chinese and Russian investments; establishinga permanent U.S. military presenceand expanding military bases (radar, missile tracking, space, naval facilities); long-term leases on ports, airports, and undersea cables; re-establishing joint development memorandums on critical minerals and strategic investments.

Scenario 2: Long-term strategic lease (less restriction on Greenland's sovereignty)

- Model similar to U.S. bases inGuantanamo BayorDiego Garcia.

– Denmark retains sovereignty, while Greenland maintains autonomy. However, the US gains base, port, radar, space, or shipping rights and de facto control over specific areas. Greenland, in turn, receives revenue, infrastructure, and security guarantees.

Scenario 3: Free Association Agreement

– A model similar to that between the US andthe Federated States of Micronesia, the Marshall Islands, or Palaurelationship.

– The US provides defense and economic support in exchange for strategic access. A model akin to that ofPuerto Rico or Guamcould also be adopted. Some US officials have discussed offering a one-time payment of up to $100,000 per Greenlandic resident to encourage support for joining the US.

Although Trump declined to disclose specific details of the agreement during his CNBC interview, he confirmed it is a 'permanent' deal. According to The New York Times, the compromise involvesDenmark transferring sovereignty of small parcels of land on Greenland to the US for the construction of military bases. If this scenario unfolds,we are currently in the phase of the first scenario (a deal being reached).

What does this shift mean for the capital markets? The Greenland theme may switch from a narrative of 'war panic' to one of 'Arctic development'. This would be a mid-to-long-term positive forDefense and militarysectors (such as companies involved in Arctic infrastructure) andrare earth strategic resourcessectors. The market logic may shift from pure risk aversion to a revaluation of the value of the 'Arctic shipping route' and resource development.

Looking ahead, key catalysts and drivers of opportunity include:

1. Big Tech earnings: As geopolitical noise fades, market focus will return to fundamentals. If this Thursday’s (today’s) released PCE data does not show a resurgence of malignant inflation, a rebound window for the broader market could open, with US stocks likely to continue in Risk-On mode over the next 1-2 weeks. The upcoming wave of big tech earnings reports next week will be critical in determining the height of the rebound. Given the current valuation environment,investor focus in the Q4 reports will be on forward-looking commentary, including AI capital expenditures and growth momentum, 2026 guidance/outlook, and margin guidance.If the earnings reports can demonstrate that AI-related capital expenditures remain on track, the Nasdaq may see a new round of valuation recovery.

2. Arctic security theme: Although the risk of war has been lifted, the 'militarization of the Arctic' remains a fact. The construction of the Greenland base will bring substantial orders.

3. Small-cap stocks (Russell 2000): The Russell 2000 Index hit a new high and has outperformed the S&P for 13 consecutive trading days, setting the longest winning streak in 28 years.

Three, options strategies

$SPDR S&P 500 ETF (SPY.US)$ and $Invesco QQQ Trust (QQQ.US)$ A technical rebound occurred on January 21, accompanied by an increase in trading volume. $SPDR S&P 500 ETF (SPY.US)$ The short-term potential resistance zone is between $690 and $696. During the same period, $Invesco QQQ Trust (QQQ.US)$ the fluctuations were more intense, with a potential resistance zone between $620 and $630. The Put/Call Ratio remained above 1.0, indicating some hedging or bearish demand in the market. As of January 21, the implied volatility (IV) of both was at a medium level in the recent range.

Considering the current macro environment, investors with different risk preferences can adopt different options strategies:

1. Aggressive investors (optimistic about the continuation of the rebound):

Some thematic sectors remain active, such as storage. $SanDisk (SNDK.US)$ 、$Micron Technology (MU.US)$ , semiconductors $Intel (INTC.US)$ 、 $Advanced Micro Devices (AMD.US)$Bullish sentiment is running high; now that the biggest macro risk has been eliminated, if investors believe the market will remain strong ahead of earnings season, they can adopt a Bull Call Spread. This strategy reduces premium costs by sacrificing some upside potential, making it suitable for betting on short-term gains from better-than-expected tech stock earnings while managing the risks of a one-sided bet.

2. Conservative/Large position holders (hedging against subsequent uncertainties):

Although the broader market rebounded, Trump's style remains highly unpredictable. Investors who already hold positions and wish to mitigate volatility caused by uncertainty can adopt a Long Collar strategy. While holding the underlying stock, investors buy out-of-the-money put options for downside protection and simultaneously sell out-of-the-money call options to cover the cost of the puts. This allows them to retain upside potential while locking in maximum drawdown.

3. Betting on subsequent uncertainties and Arctic-related themes:

Despite the removal of tail risks, details regarding the construction of the Greenland base (contract amounts, participants) have not been fully disclosed, keeping the defense and military sector relevant. $Lockheed Martin (LMT.US)$ , rare earth resources $MP Materials (MP.US)$ Future volatility may increase as news unfolds. Buying a Long Straddle or Long Strangle allows purely capturing profits from an expansion in volatility without betting on direction. When market consensus is mixed or expected volatility is high, these strategies can seize opportunities in both upward and downward movements, avoiding the risk of one-sided bets.

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Disclaimer

This content does not constitute any offer, solicitation, recommendation, opinion, or guarantee regarding securities, financial products, or tools. The risk of loss in trading options can be substantial. In certain circumstances, the losses you incur may exceed the initial margin deposited. Even if you have set contingency orders, such as “stop-loss” or “limit” orders, these may not necessarily prevent losses. Market conditions may render such orders unexecutable. You may be required to deposit additional margin within a short period. If you fail to provide the required amount within the specified timeframe, your open positions may be liquidated. However, you will still be responsible for any shortfall in your account resulting from such liquidation. Therefore, before engaging in options trading, you should thoroughly study and understand options and carefully consider whether such trading is suitable for you based on your financial situation and investment objectives. If you trade options, you should familiarize yourself with the procedures for exercising options and the rights and obligations upon exercise or expiration of options.

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