Davos: The good, the bad, and the ugly

Should investors continue to believe in the “TACO” trade, or should they take the U.S. administration at its word?

Market recap

• Equity markets had another choppy week alongside some geopolitical drama, but ultimately rebounded to finish little changed.
• Concerns over the U.S. Administration and Greenland were put to rest for now during President Trump’s Davos speech, which cleared the way for a mid-week rally.
• The S&P 500 finished down 0.4%, with gains in energy and materials offset by weakness in financials.

Geopolitics

Late last week, markets got a short-term reprieve from volatility as U.S. President Donald Trump moderated his comments on Greenland and potential tariffs on the European Union (E.U.). Should investors continue believing in the so-called TACO trade (which presumes that the U.S. administration will ultimately back down if faced with enough opposition), or should they take the threats seriously in light of the military action in Venezuela? Our view is that there is still a TACO trade to the extent that Trump’s initial statements are not necessarily an indicator of how a situation will eventually play out. Tensions like those we saw with Greenland do create an opportunity to buy, especially if there is significant movement in markets; indeed, we’ve already seen markets bounce back from their lows of mid-last week. Looking ahead, the looming Supreme Court case that will decide the legality of Trump’s tariffs means that the administration is likely to examine what they will and will not be able to do with respect to tariffs going forward. It is already clear that they like to use tariffs to achieve geopolitical aims. The key is that their threats have worked—at least some of the time. As long as tariffs are a tool that is available to them, they are likely to keep using them. With the Greenland situation in particular, Europe was coming off of a not-great environment, and the last thing they needed was another economic hiccup. In the end, as has often been the case, Trump did not have to actually implement his proposed tariffs—the threat was enough to get a conversation started.

Bottom line: The Greenland situation demonstrated why markets should take a longer-term perspective—and take initial statements with a grain of salt.

Davos

Prime Minister Mark Carney received significant attention, including rave reviews in some circles, for his remarks delivered at the World Economic Forum in Davos last week. In the speech, he suggested a rotation away from U.S. interests.¹ While this burgeoning trend could affect geographic allocations down the road, we expect the impact will be muted in the short-term because of the challenges countries will face disentangling themselves from the United States. Simply put, any pivot away from the U.S. will not happen overnight. However, if in three-to-five years, countries like Canada are exporting less of their goods to the U.S. and have successfully decreased their overall reliance on America, we think that will make those countries’ economies stronger. For people currently invested in the United States, there are both plusses and minuses to broadening out one’s geographic allocation. Historically, the U.S. economy has been very strong. If you move away from it, you diversify your risks. But you also diversify away from the positive outcomes that U.S. markets have delivered fairly consistently. As to Carney’s speech itself: if you’re a Canadian, you probably liked it. However, United States-Mexico-Canada Agreement (USMCA) negotiations are right around the corner, and the remarks clearly drew the ire of President Trump. It may have been a popular political move domestically, but it may have made trade negotiations with the U.S. administration that much more difficult.

Bottom line: In the near term, we don’t expect asset allocators to make a significant pivot away from U.S. markets.

Canada

Speaking of Mark Carney, his government has been announcing new trade deals at a near-record pace, most notably the “strategic partnership” with China rolled out two weeks ago.² This has raised questions about whether investors may find upside potential in Canada’s Energy and Resources sectors. Our view is that Canada needs to find ways to maximize opportunities in areas in which we have strength, which includes those two sectors. We’ve already seen massive movement in gold prices, and even taking the U.S. presence in Venezuela into account, Canada also has a chance to export its oil to China and elsewhere. Thus far, Carney has done a good job striking deals with other countries, and we’d like to see a continuation of that going forward as the country grows its business outside of the U.S. In particular, the agreement with China—and especially the focus on electric vehicles (EVs)—made sense, in our view. The downside is that the U.S. will likely seek to undermine it. Ontario Premier Doug Ford’s comments urging Canadians to boycott Chinese-made cars is likely an attempt to protect the Canadian automotive sector, which has a large presence in Ontario. However, we think it’s unlikely that such a boycott will have a significant impact, because ultimately consumers will make decisions based on price and quality, both of which are hallmarks of Chinese EVs.

Bottom line: We expect to see lots of opportunities in Canada’s traditionally strong sectors, including Energy and Resources.

Positioning

For more insights on market risks and opportunities, including a video replay of my recent BMO GAM 2026 market outlook call, explore our 2026 Investment Outlook Centre .

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Originally Posted January 26, 2026 – Davos: The good, the bad, and the ugly

Source

¹“Read the full transcript of Carney’s speech to World Economic Forum,” Global News, January 20, 2026. 

²“Prime Minister Carney forges new strategic partnership with the People’s Republic of China focused on energy, agri-food, and trade,” Government of Canada, January 16, 2026. 

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