Four Greenland Scenarios for the Stock Market & the Economy

Trump wants Greenland and the financial markets are very concerned about it. Ralph Wessels, Head of Investment Strategy at ABN AMRO, outlines four scenarios that each have a different impact on the stock market and the economy.

Despite a good start to the stock market year 2026, geopolitical risks have jumped due to developments in Venezuela, Greenland and Iran. In general, geopolitical risks have only a limited and temporary impact on the stock market. Nevertheless, that could be different in the case of the ‘annexation’ of Greenland by the US.

We distinguish four possible Greenland scenarios:

1. The Canada scenario, in which the issue fades into the background and is dropped.

2. An agreement scenario, in which the US and Europe reach an agreement with more control for the US.

3. The concession scenario, in which the US takes Greenland militarily and Europe has to accept a loss.

4. The escalation scenario, in which the US takes Greenland militarily, but Europe fights back by imposing sanctions.

The first two scenarios are the best for the stock market and the economy. In those cases, our current positive outlook and the expectation that global economic growth and corporate profits will accelerate remain largely unchanged. However, gold prices and the defense sector may experience a slight correction, as the geopolitical risk premium decreases.

In the concession scenario, Europe is primarily the loser, as its security is affected. This will have negative effects on confidence, which will spill over into the economy. In addition, defense investments will intensify, causing shortages to rise further. This is negative for bonds. European equities will lag relatively, excluding defense stocks. It is likely, however, that geopolitical risk will remain high, which justifies a global risk premium. This could put some pressure on the global equity index. Gold will benefit, while the dollar will experience mixed effects. Overall, we expect the dollar to weaken because the US appears unreliable.

The escalation scenario is the worst-case scenario but has different levels depending on the degree of escalation. For example, does Europe impose limited sanctions or deny the US access to the internal European market (anti-coercion measures), and how does the US respond? Recession scenarios become more likely the further the situation escalates. Logically, this has negative consequences for financial markets, with equities being hit hardest. Regionally, emerging markets may perform relatively better, while cyclical sectors—except for the defense industry—will lag. Gold will benefit. Although in the short term the dollar and government bonds may serve as safe havens, we expect this perception to eventually reverse due to the unreliability of the US.

Conclusion: low conviction and positive on equities and gold

Over the past weekend, the situation escalated after President Trump once again imposed import tariffs on certain European countries in response to sending NATO reconnaissance missions to Greenland. However, it is still too early to say that we are in the escalation scenario. Anything is still possible. For this reason, conflict situations are by definition very difficult to base investment policy on. Our conviction in any one scenario is therefore currently insufficient, and the potential timeline is also unclear.

We continue to monitor the situation but, for now, maintain our positive view on equities and gold, with a neutral view on bonds.

Sources: IEX, ABN AMRO, Maksym Diachenko