Forget TACO trades and meme stocks, this rally is no illusion

The National

a day ago

Are stocks ignoring reality? Or gorging on empty calories of 'TACO' (Trump Always Chickens Out) trading – or getting bloated from frothy meme stocks? Bears believe that since world stocks' rally quickly reversed 2025's early-year correction.
The reality is way simpler: forward-looking stocks pre-priced a worst-case tariff scenario in the spring that never arrived. A better-than-feared world is now taking shape. In any bull market, that is all stocks need to rally.
Stocks move most on surprises – and US President Donald Trump's April 2 'Liberation Day' tariff debacle was a doozy of a negative surprise. You know the fears that followed, you have heard them for months.
A huge retaliatory trade war engulfing the entire world. Recession roiling the globe. Hot inflation galloping again as tariffs turbocharge import prices and muck up supply chains. A reworking of long-held alliances and perhaps even the world order. Bad, bad, bad.
The initial panic was fully understandable, given the proposed tariffs' stunning (and stupid) scope, as I detailed before. And how hard it would be to know what would happen since tariffs are always negative – governmentally picking winners and losers, discouraging investment, interrupting trade flows and worse. Some threatened tariff rates were prohibitive. Stocks had to pre-price that potential awful impact.
Particularly US stocks. Tariffs always hurt the imposer the most, as I've said here before, because the imposer citizens ultimately pay them. Moreover, Mr Trump's vacillating sparked sweeping American uncertainty.
But reality has proven far better than feared. Through late July, the US collected only about 42 per cent of worst-case scenario tariff estimates, based on import volumes.
Why? Many tariffs are easily evaded, as I explained in June. Firms continue to transship through other countries that have lower tariff rates. They find loopholes – legal and illegal.
Meanwhile, US Customs and Border Protection simply hasn't enough staff to inspect all shipments. Goods slip through. Yes, Mr Trump wants to hire 10,000 customs and border agents. Good luck.
During his first term, a Department of Homeland Security report found hiring 5,000 qualified personnel is likely to require interviewing 750,000 candidates, based on hiring and attrition rates. And this is after the administration laid off many workers. What qualified workers will want that role and risk?
Also, while we are far from the '90 deals in 90 days' Mr Trump promised, new trade agreements have emerged. They aren't great and leave tariffs much higher than a year ago. That is objectively bad. But not as bad as those lousy post-April 2 expectations. Less bad than feared is always bullish.
Yes, America's deals with the UK and China were flimsy. But Japan and EU deals yielded lower tariff rates than feared. Vietnam, too.
Don't misunderstand – these deals include abundant phoney baloney, like the US 'investment commitments' other countries supposedly made. Japan's $550 billion plan is mostly a lending facility with only 1 per cent to 2 per cent of funds deployed as direct American investment – if they ever are.
China's 2018 investment pledges wildly under-delivered. The EU is already openly contradicting White House statements about its supposed US investment plan. Yet again, the totality is less bad than previous draconian fears, step by step – an OK for stocks.
Retaliation? Little to speak of after China's initial tit-for-tat, which flipped to fizzle fast. Instead, non-US nations seem invested more in stimulating their own economies and freeing trade with other nations outside America.
The UK signed a free trade agreement with India in May. It lowers tariffs and eases trade barriers. Now, the EU is working on doing similarly. Other talks are under way, spurred by Mr Trump's protectionist threats. Those pluses counteract some of his tariff turmoil.
Further, the tariff-induced supply chain chaos some feared is nowhere to be found. The Federal Reserve Bank of New York's Global Supply Chain Pressure Index is at zero – exactly in line with the historical average since 1997. The number of ships entering US ports is in line with the median for the last four years. Ships anchored outside US ports have increased slightly but are a far cry from 2022's crazy back-ups.
Hence, markets rebounded – rationally and justifiably. They see economies weathering the tariff terror and corporate earnings expectations climbing.
US stocks lagging other countries in 2025 shows you tariffs are still worse for America than other countries. US stocks are up 9.4 per cent through July 28 versus 19.8 per cent for the rest of the developed world. Yes, the US regained some ground since the lows. But that is all about bouncing bigger after falling more.
The hunt for froth, TACO trades or other explanations is unnecessary narrative creation conjuring biased takes. Tariffs are bad. Period. But as I told you, they are hard to implement and would likely not be as bad as expected. You are seeing that now – and that's bullish.