A new acronym is making its rounds on Wall Street: TACO, which stands for “Trump Always Chickens Out.” This refers to markets betting on Trump walking back tariff proposals, a trend which has created significant volatility in the stock market. First, it was the Trump trade; now it’s TACO. The new meme, first floated this month, is becoming a blueprint for playing the stock market in 2025.
The TACO trade is based on the observation that the stock market often dips sharply following President Trump’s trade war proclamations, only to rebound when he retreats from those threats. For example, when Trump issued sweeping tariffs on April 2, the market dropped over 12% in the following days. However, on April 9, Trump announced a major rollback, igniting a furious stock rally that included the best day for the S&P 500 in nearly two decades.
Similarly, 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. One recent instance occurred just last week after Trump called for a 50% tariff 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 tariff 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,” said Eric Sterner, the chief investment officer at Apollon.
Markets react to tariff volatility
“I think that’s a big part of his scorecard — what the stock market does.”
On Wednesday, Trump responded to the TACO nickname, calling it “nasty.” He argued that his tariff threats are a strategic move to bring trading partners to the negotiating table. “They wouldn’t be over here today negotiating if I didn’t put a 50% tariff on,” he said. “The sad thing is, now, when I make a deal with them — it’s something much more reasonable — they’ll say, ‘Oh, he was chicken.
He was chicken.’ That’s unbelievable.”
Trump’s election win initially injected a massive shot of bullish excitement across Wall Street. The subsequent rally in a handful of assets such as cryptocurrency, Tesla stock, and bank shares was evident of this. However, some of those bets soured due to the overshadowing trade war.
With TACO, investors have a new guiding principle. “Buy the Trump tariff dip,” advised Tom Essaye of the Sevens Report. “Trump has proven to investors that he won’t actually follow through with draconian tariffs.”
Retail investors have adopted the strategy, but the effectiveness of the TACO trade will depend on what happens after the tariff delays unwind over the summer.
“You can get some short-term gains there,” Sterner said, though he warned that the US could face a more damaging downturn if trade deals aren’t negotiated before the tariff pauses expire. “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.”
The TACO trade represents the latest in market strategies revolving around President Trump’s unpredictable trade policy, and its success hinges on his future actions.
