The stock market has a new meme: TACO, which stands for “Trump Always Chickens Out.” This acronym refers to market bets on President Trump backing down from his tariff proposals. Investors have noticed a pattern where the stock market dips sharply on trade war announcements but rebounds whenever President Trump retreats from his initial hardline stance. Several instances illustrate the TACO trade in action.
On April 2, President Trump issued sweeping tariffs, leading to a market plunge, only for stocks to recover significantly when the tariffs were subsequently reduced. On another occasion, Trump announced a significant tariff on April 9, igniting a furious stock rally that included the best day for the S&P 500 in nearly two decades.
Investors follow TACO pattern closely
Trump defended his actions and criticized the TACO acronym as “nasty.” He said, “They wouldn’t be over here today negotiating if I didn’t put a 50% tariff on.” He added that when he negotiates for something more reasonable, critics accuse him of “chickening out.
With TACO, investors now follow a new guiding principle: “Buy the Trump tariff dip.” Tom Essaye of the Sevens Report summarized this strategy, noting that any sell-off following a dramatic tariff threat should be bought because investors believe Trump won’t follow through with harsh tariffs. Retail investors have increasingly adopted this strategy; however, its long-term effectiveness remains uncertain. Eric Sterner, chief investment officer at Apollon, warned that the US might face a damaging downturn if trade deals are not negotiated before tariff pauses expire.
“If this game continues, it will put the US economy into recession at some point,” he said. “That’s when that game ends in a bad way.”
The fate of the TACO trade will depend on developments in tariff negotiations over the summer. Until then, investors will be closely watching President Trump’s next moves.
