Wall Street's "TACO" Trade Betting on Trump's Backpedaling?

Wall Street's Newest Obsession: Decoding the 'TACO' Trade in the Age of Trump Tariffs

In the often-turbulent world of stock market investing, a new, almost counter-intuitive strategy has emerged, born from the unpredictable policies of the Trump administration. It's called the "TACO" trade, and it's capturing the attention of Wall Street strategists and everyday investors alike.

But what exactly is the TACO trade? And why is it suddenly so relevant?

The Birth of an Acronym: Understanding 'Trump Always Chickens Out'

The acronym, ingeniously coined by Financial Times columnist Robert Armstrong, stands for "Trump Always Chickens Out." As Armstrong himself noted, "Acronyms are very powerful, especially when they remind people of foodstuffs." The core idea behind the TACO trade is that investors can profit from the market's reaction to Trump's tariff announcements.

Here’s how it generally plays out:

• Trump announces a new tariff or trade restriction, causing market jitters and a dip in stock prices.
• Savvy investors "buy the dip," acquiring stocks at lower prices.
• Trump, true to the acronym, eventually reverses or delays the tariff, leading to a market rebound.
• Investors then "sell" at the higher prices, pocketing the profit.

A Case Study: The EU Tariff Threat and Subsequent Reversal

The effectiveness of the TACO trade was recently highlighted by Trump's threat to impose a 50% tariff on imports from the European Union. On May 23rd, when the threat was issued, the S&P 500 fell by 0.67% and the Nasdaq by 1%. However, just two days later, Trump deferred the tariff increase, and on the following Tuesday, the markets surged back up. The S&P rose by 2.05% and the Nasdaq by 2.47%. The recovery was significantly greater than the initial decline.

The "Liberation Day" Tariff Carousel: A Wild Ride for Investors

This wasn’t the first rodeo for the TACO trade. The period from April 2nd to April 9th, dubbed the “liberation day” tariff carousel, was particularly memorable. Trump announced a raft of "reciprocal" tariffs, reaching as high as 50%. The market initially crashed, with the S&P falling nearly 5% and the Nasdaq down nearly 6% – the worst day since the pandemic-triggered fall in March 2020.

However, on April 9th, Trump backed off, announcing a 90-day pause. This triggered a significant rally, with the S&P gaining 9.52% and the Nasdaq gaining 12.16% – one of their biggest one-day percentage gains ever.

Is Insider Trading a Factor?

The volatility caused by these announcements has even sparked suspicions of insider trading. Senator Adam Schiff questioned whether individuals within the administration were profiting from advance knowledge of Trump's tariff flip-flops.

The Underlying Sentiment: Resentment and Negotiation

Trump has openly expressed his displeasure with the "TACO" label. He argues that his actions are simply part of the negotiation process. However, the reality is that his tariff policies have been widely criticized, even invalidated by the U.S. Court of International Trade.

Lessons for Investors: Don't Panic!

The TACO trade offers valuable lessons for investors:

• Avoid panicking during short-term market downturns driven by Trump's announcements.
• Consider that Trump's bark is often louder than his bite.
• Be prepared to capitalize on market rebounds following tariff reversals.

As Ben Carlson of A Wealth of Common Sense pointed out, those who panic-sold after Trump's "liberation day" tariff announcement missed out on the year's entire market gain.

The Bigger Picture: Long-Term Ramifications and Shaken Confidence

While the TACO trade can offer short-term gains, the long-term consequences of Trump's trade policies are still uncertain. The constant reversals and lack of clear strategy have shaken confidence in U.S. economic growth and destabilized the international trade system.

In Conclusion: Betting on the Inevitable Chicken Out

For now, the TACO trade remains a viable strategy. The prevailing sentiment is that Trump will, indeed, continue to "chicken out." While it may be a somewhat cynical approach, it reflects the reality of navigating the markets in an era of unpredictable policy decisions. It's a reminder that in the face of uncertainty, understanding the driving forces behind market movements – even if those forces are rooted in political volatility – can be key to successful investing.

Tags: Trump tariffs, TACO trade, Stock market, Trade strategy, Robert Armstrong, Financial Times, EU imports, Tariff threat, Investment, Market response

Source: https://www.latimes.com/business/story/2025-05-29/explaining-the-newest-wall-street-craze-the-taco-trade