Good morning, investors. President Trump is expected to speak today in Davos, Switzerland at the World Economic Forum’s annual meeting.

Friends of mine who are there on the ground tell me the vibe is anxious and defensive, with Greenland dominating conversations on and off the record.

The market has reacted in kind, with the VIX volatility index hitting its highest level since November.

Wall Street’s fear gauge is flashing with Greenland drama heating up and a sell-off in the Japanese bond market.

And with global leaders converging in Davos, markets are back in the familiar position of responding to geopolitical noise.

That’s dragged US stocks lower and pushed the VIX volatility index up 30% from a week ago, underscoring the sense of near-term panic among investors.

That kind of swing feels destabilizing at the moment. Yet it’s also historically marked something like a reset button before asset prices move higher. 

Dating back to 1990, a weekly VIX spike of 30% or more has coincided with strong returns in the S&P 500 over the following year. 

The S&P 500’s median return over the next 12 months has been about 17% — almost double its long-term annual return — and stocks have ended higher in more than 80% of those cases. 

History also confirms that the bigger the VIX surge — the more extreme the “fear” — the higher the forward returns. 

Importantly, that pattern holds even when volatility is driven by political tumult rather than fundamentals. 

Both the 2011 debt-ceiling standoff as well as the 2018 trade war fears, for example, led to spikes in market volatility and near-term pullbacks for stocks. In both instances, stocks were higher by double digits a year later.

Markets have a habit of racing to price in worst-case scenarios before rebounding once there’s more clarity.

That dynamic has been especially true through the second Trump administration, as “Liberation Day” showed.

Investors who stayed invested after the president’s initial tariff announcement are now up roughly twice as much as those who sold in last April’s panic.

Meanwhile, it’s also worth noting that the S&P 500 tends to perform well the year after a major geopolitical shock.

Across the Korean War, Gulf War, 9/11 attacks, Ukraine invasion and other events, the S&P 500 has gained 14.2% on average over the following 12 months.

That’s what investors should remember as they digest the Greenland flare-up. 

Davos will amplify the noise, but markets have repeatedly shown that political antics rarely translate into lasting damage to fundamentals.

Staying on top of markets that hit a new all-time high seemingly every week, a never-ending news cycle and volatility that’s frankly...volatile is a lot of work.

No matter what the market is doing, tastytrade has the tools you need to stay up to date and trade your way through it.

With tastytrade you get advanced charts, in-feed news and smart tools to help you adapt your strategy when the market shifts. You can manage your entire portfolio (stocks, options, futures, forex, and crypto) all on one platform with low commissions. 

See why serious traders choose tastytrade. 

📈 Netflix crushed Q4 earnings. The company said it had 325 million paid subscribers, and that full-year ad revenue grew by more than 2.5 times to $1.5 billion. (CNBC)

🌎 Greenland could hit Big Tech stocks. Morgan Stanley’s Mike Wilson doesn’t expect a big hit to broader markets, but he does see a risk to US mega cap names if the EU activates its “anti-coercion” tool and hits services. (WSJ)

🚀 Scott Bessent predicts 5% GDP growth in 2026. The Treasury Secretary’s estimate is double that of leading forecasts, though one model from the Atlanta Fed does see 5% growth for the final quarter of 2025. (Barron’s)

📊 The S&P 500 is on pace for double-digit earnings growth again. If the fourth quarter results pan out as expected, it would mark the fifth double-digit quarter in a row, and the 10th consecutive of year-over-year earnings growth. (FactSet)

I joined the New York Stock Exchange to discuss the disconnect between the labor market and economic growth, an optimistic take on AI, and what investors expect with interest rates.

Watch on YouTube.

🗓 January 21, 2020: Airline, travel and luxury stocks lagged and volatility climbed as equity markets began to respond to early warning signs of the COVID-19 pandemic.

📩 Want to get in front of 193,000+ investors who get this newsletter and the 350,000 professionals who can access it on Bloomberg Terminals? Reply to this email and tell us why we should work together.