For nine months, the TACO trade has proved a reliably winning one on Wall Street.
Short for “Trump Always Chickens Out,” it emerged in the wake of the U.S. president’s global tariff rollout — and rollback — last April. It quickly became the rallying cry for investors tuning out the more extreme White House threats as they kept buying risky assets.
There’s just one problem with the trade, though, as some on Wall Street are beginning to appreciate. If TACO means investors don’t need to panic when Trump signals aggressive policy action after another, then there are no market collapses violent enough to spook him into backing down like he did on tariffs last year.
Trump’s push to take over Greenland — complete with threats of tariffs against European allies — has brought a sense of urgency to the matter in markets.
They slumped Tuesday, with the S&P 500 sinking 2.1%, the dollar sliding and volatility spiking, though the sell-off quickly gave way to a tepid rebound Wednesday morning. For the TACO trade to live on, some say, there first needs to be a bigger, more chaotic rout that reminds Trump of the market pain he stirred up in April.
“Is this all just TACO again? Oh absolutely,” said Marko Papic, chief strategist at BCA Research. “But I think that we may have to have a Liberation Day-type of a downturn before we get to the bottom of it.”
In the telling of Papic, the escalating tension with Europe may serve multiple purposes — one of which is to shift attention from domestic policy issues, including a pending Supreme Court ruling on Trump’s authority to impose tariffs, a decision with potentially far-reaching consequences.
Another reason: It follows a string of disruptive maneuvers by the White House, including pressure on the Federal Reserve and renewed trade rhetoric, at a time when markets sit far higher than they did last spring.
The S&P 500 has nearly doubled from its 2022 lows and remains near record highs, leaving less room for error. At the same time, hedging against an equity sell-off had fallen to some of the lowest levels in years, according to the latest Bank of America survey — a backdrop that left many investors exposed just as volatility broke out this week.
While many still assume the president will pull back before markets suffer overt damage, some warn that belief may be premature.
“If history is any guide, President Trump will back off from the most aggressive stance he is taking,” said Matt Maley, chief market strategist at Miller Tabak + Co. “However, I think it won’t happen until or unless the markets see some meaningfully negative moves. So far, these moves are only very minor.”
Geoffrey Morgan and Lu Wang contributed.