First, it was the Trump trade; now it’s TACO. The new meme, first floated by The Financial Times this month, is making the rounds on Wall Street as a blueprint for playing the stock market in 2025.
What is the TACO trade?
It’s an acronym for “Trump Always Chickens Out.”
As demonstrated several times this year, the stock market has dipped sharply on President Donald Trump’s trade war proclamations, but it has inevitably rocketed back up when the president retreats.
In other words, when Trump announces new tariff policies, it might be a good time to buy.
A few months into Trump’s presidency, there are several examples of the TACO trade at work.
- When Trump issued his sweeping “Liberation Day” tariffs on April 2, the S&P 500 tanked over 12% in the following days. On April 9, Trump announced a 90-day pause, igniting a furious stock rally that included the best day for the S&P 500 in nearly two decades.
- Meanwhile, the index has gained over 1% since mid-May, when the White House announced a framework trade deal with China that lowered tariffs for 90 days. The development helped stocks recover all of their losses since the April lows.
- The latest example came just last week after Trump called for a 50% tariff on the European Union starting on June 1, which sparked a slide in the stock market that day. Then, over the weekend, Trump announced that he’d delay the tariffs until July 9. The S&P 500 rebounded by nearly 2% on Tuesday as traders returned from Memorial Day.
“I think the only person or entity he listens to is the stock market,” Eric Sterner, the chief investment officer at Apollon, told Business Insider. “I think that’s a big part of his scorecard — what the stock market does.”
Why it matters
Trump’s election win injected a massive shot of bullish excitement across Wall Street. The subsequent rally in a handful of assets such as crypto, Tesla stock, and bank shares was dubbed the Trump trade.
The thesis was that owning areas of the market that were likely to benefit from Trump’s agenda was a foolproof bet. However, some of those bets soured, mainly because the trade war came to overshadow any optimism about deregulation or other White House priorities.
With TACO, investors have a new guiding principle.
“Buy the Trump tariff dip. Essentially, Trump has proven to investors that he won’t actually follow through with draconian tariffs,” Tom Essaye of the Sevens Report wrote on Wednesday. “As such, any sell-off following a dramatic tariff threat should be bought.”
Retail investors have adopted the strategy, with dip-buying at historic levels recently. But how long the TACO trade will remain effective depends on what happens after the tariff delays unwind over the summer.
“You can get some short-term gains there,” Sterner said, but he also warned that chances are high the US could face a more damaging downturn if trade deals aren’t negotiated before the tariff pauses expire, though that isn’t Apollon’s base case.
“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,” Sterner said.
