Investors are 'TACO' trading in US markets, but bond markets are rattled

RTÉ News​

27-05-2025

Shares were mixed this morning following the postponement of 50% duties on European Union shipments to the US.
The threat of tariffs has reinforced the unpredictability of US President Donald Trump's trade policies and kept investor sentiment fragile.
But are investors beginning to take tariff-related announcements with a pinch of salt now?
Over the last number of months, US assets have been under tremendous pressure, including bonds, the dollar and stock markets.
"What we've seen recently has been a huge inflow into the stock markets over the last four to five weeks, especially from retail investors," said Paul Sommerville of Sommerville Advisory Markets.
"In April alone, over $40 billion dollars net was put into the stock market by net investors in the USA," he said.
He said this is due to TACO trading - Trump Always Chickens Out - which is leading some retail investors to jump into the markets because they feel the US President will change his mind.
However, the bond markets are very worried about the spending that is currently going on in the US. The US credit rating was downgraded by Moody's just last week.
"The bond market is saying we need to push up interest rates, spending is out of whack," Mr Sommerville said.
"The deficits at the moment are around 7% of GDP which is recessionary type deficit spending. For example, the interest that the US Government is currently spending is higher than the defence spending budget for 2025," he said.
"So stock markets are saying, we're actually not too worried about that because higher spending is going to lead to higher growth, but the bond market is extremely worried about that and that's why they're pushing up interest rates," he told Morning Ireland.
Mr Sommerville said the stock market is more nuanced and some people are jumping into the market believing the second half of the market will be much more positive.
"I have to caveat that; professional investors are much more cautious, they've been selling out of US assets, selling out of US stocks but it's the retail investor and this euphoria that are piling in," he added.