Wall Street Questions Durability of ‘TACO Trade’ as Trump Rattles Markets Again
Wall Street is rethinking the TACO trade as Trump’s renewed geopolitical threats trigger volatility and challenge assumptions that markets will always force policy reversals.
For months, the so-called TACO trade — short for “Trump Always Chickens Out” — has underpinned investor confidence on Wall Street, encouraging markets to shrug off aggressive policy threats from the White House. Born after last year’s tariff reversals, the trade assumed that market turmoil would ultimately force President Donald Trump to retreat. That belief is now being tested.
TACO Trade
Trump’s renewed push to assert control over Greenland, coupled with tariff threats against European allies, triggered a sharp sell-off this week. The S&P 500 fell 2.1% on Tuesday, volatility surged, and the dollar weakened before a modest rebound followed. Analysts warn that markets may now require a deeper, more chaotic downturn to provoke a policy reversal similar to last year’s retreat.
Strategists say investor complacency, reflected in low hedging levels and compressed risk premiums, has left markets vulnerable. While some still expect Trump to soften his stance, others caution that assumptions underpinning the TACO trade may be premature, particularly as equities hover near record highs. With volatility breaking out and geopolitical risks rising, confidence that Trump will always back down is increasingly being questioned.
Kazi Mahmood