Today's 'Trump Trade' Has a Catchy Nickname. But Should You Buy It?
Investors are attempting to figure out from day to day what the next twist in Trump's tariff policy could be and how it might affect stocks.
The upshot, for some, is the belief that Trump eventually delays or otherwise modifies policies the market doesn't like, so trade-policy negativity will be shaken off before long.
There's a nickname for this: the "TACO Trade." But investors have mixed opinions about whether it's a safe bet.The 'Trump Trade' has evolved. How investors should play it is up for debate.
The early days of President Donald Trump's second administration supercharged a climb in stocks that started late last summer, lifting the major indexes and some specific assets—shares of Tesla (TSLA), cryptocurrency—in particular. Sprinkled in was volatility around stock and sectors seen as likely to be helped or hurt by spending and regulatory efforts.
Some of that remains in place, but the action these days is largely around global trade policy. Investors are attempting to figure out from day to day what the next twist in Trump's tariff strategy could be and how it might affect stocks in the hours, days and weeks ahead.
That's taken on particular salience since stocks swooned after the April 2 'Liberation Day' tariff announcements and then began working their way back. The upshot, for some, is the belief that Trump eventually delays or otherwise modifies policies the market doesn't like, so trade-policy negativity will be shaken off before long.
There's an alliterative nickname for this: the 'TACO Trade,' short for 'Trump Always Chickens Out,' coined last month by a Financial Times columnist. (Asked about it at a press conference, Trump was unamused.) Discussion of the term has taken on a political character and become fodder for The Wall Street Journal, The New York Times, and other publications—now including this one—but it has also found its way to the lips of investors and analysts.
BCA Research mentioned it in a note earlier this week, calling the trade 'overcooked' and suggesting that investors may have grown too sanguine. 'Risk assets price in trade deals and de-escalation along with limited policy damage despite ongoing volatility,' they wrote. Pepperstone analyst Michael Brown in late May effectively equated taco trading with buying the dip.
Deutsche Bank analysts in their own note this week didn't use the taco term, but—in raising their year-end target for the S&P 500—cited the idea that 'the administration had already relented, driven primarily by the market reaction, and before the emergence of significant economic or political pain. This reinforces the view that if negative impacts of tariffs do materialize, we will get further relents.'
Other factors have undoubtedly aided stocks in recent weeks even as questions about the path forward for trade and the economy remain. The first-quarter earnings season was generally seen as strong, and Nvidia's (NVDA) results and outlook have supported the AI trade. Futures markets indicate an expectation that the Federal Reserve cuts rates twice by the end of the year, as the job market shows signs of weakness and inflation approaches the Fed's target.
JP Morgan analysts on Tuesday shared a calendar of key trade dates in the coming months, noting a litany of summits and policy expirations—a 90-day pause on tariffs against the EU expires next month, and reduced U.S.-China tariffs are set to pass in August—between now and the end of the year. The administration reportedly asked countries to submit their 'best offers' in trade negotiations by Wednesday.
Some investors don't buy the inevitability of bullishness around trade news. 'We think that, unfortunately, as the so-called 'TACO Trade' becomes more viral, it becomes more likely that Trump will stick to higher tariffs just to prove a point,' Panmure Liberum Head of Strategy Joachim Klement recently told a Reuters interviewer.
In short, it may not pay to oversimplify the effect that trade could have on markets in the coming months. 'There are no signs of a summer break from tariff drama,' JP Morgan wrote.
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