Wall Street is buzzing with a new investment strategy known as the TACO trade, an acronym that stands for ‘Trump Always Chickens Out.’
This concept gained traction after being introduced by The Financial Times this month and appears to offer a game plan for stock market investors looking towards 2025.
The TACO trade highlights the tendency of the stock market to react positively when President Donald Trump retreats from aggressive tariff policies, suggesting a buying opportunity during such downturns.
The stock market has shown a consistent pattern of declines following Trump’s trade war announcements, only to rebound sharply once he steps back on his declared threats.
Early in Trump’s presidency, examples of this phenomenon became evident.
On April 2, Trump instituted sweeping tariffs, leading to a 12% drop in the S&P 500 in the subsequent days.
However, on April 9, he announced a 90-day pause on these tariffs, triggering a remarkable rally in the stock market, which included one of the best days for the S&P 500 in nearly two decades.
Similarly, in mid-May, the announcement of a framework trade deal with China that provided for a temporary reduction in tariffs helped the index recover all losses experienced since April.
Most recently, after Trump threatened a 50% tariff on the European Union, the stock market plunged, only to surge nearly 2% after he postponed the tariffs until July 9.
Eric Sterner, the chief investment officer at Apollon, commented on Trump’s sensitivity to market movements, stating, “I think the only person or entity he listens to is the stock market.
I think that’s a big part of his scorecard — what the stock market does.”
In response to the emergence of the TACO acronym, Trump dismissed the idea that he capitulates to market pressures, labeling the term as ‘nasty.’
He defended the imposition of tariffs as a necessary negotiating tool, stating, “They wouldn’t be over here today negotiating if I didn’t put a 50% tariff on… the sad thing is, now, when I make a deal with them, they’ll say, ‘Oh, he was chicken. He was chicken.’ That’s unbelievable.”
The significance of the TACO trade comes against the backdrop of Trump’s election victory, which initially sparked considerable bullish excitement across markets.
This optimism, referred to as the Trump trade, was grounded in the belief that certain sectors would thrive under Trump’s administration, particularly in light of deregulation and tax reforms.
However, this enthusiasm has waned in light of ongoing trade tensions, with the trade war now taking precedence over other White House initiatives.
The TACO trade structure indicates that investors should buy during the dips following aggressive tariff threats from Trump.
Tom Essaye of the Sevens Report commented, “As such, any sell-off following a dramatic tariff threat should be bought,” emphasizing that investors no longer view these threats as serious or likely to be enacted.
Retail investors have eagerly embraced this strategy, leading to historically high levels of dip-buying across the market.
Yet, the longevity of the TACO trade remains uncertain and is highly contingent upon the outcomes of negotiations surrounding tariffs over the coming summer months.
While short-term gains from this strategy are possible, Sterner cautioned that if trade agreements are not reached before the looming expiration of tariff pauses, the US economy could face a dire downturn.
He warned, “If this game continues, it will put the US economy into recession at some point, and that’s when that game ends in a bad way,” although he remains hopeful that such an outcome is unlikely.
image source from：https://www.businessinsider.com/trump-trade-taco-tariffs-buy-the-dip-trade-war-sp500-2025-5
