Is the “TACO” Trade Ending? Trump May No Longer Be the Tariff “Flip-Flopper”, Wall Street Expected

TradingKey - President Donald Trump’s frequent reversals on tariff policy have given rise to a popular trading narrative on Wall Street known as “TACO” (Trump Always Chickens Out)—the idea that market volatility can pressure Trump into backing down from aggressive trade policies, leading to sharp market rebounds.However, after Trump recently lashed out at this logic, analysts are now questioning whether he will adopt a more rigid stance on tariffs, making policy shifts less predictable and more damaging to financial markets.What Is the TACO Trade?The term “TACO” was first coined by Financial Times writers and later adopted across Wall Street. It refers to Trump’s tendency to retreat from controversial policies—especially tariff hikes—after triggering a market selloff.For example, in April 2025, when Trump announced reciprocal tariffs, bond and stock markets plunged. But just hours later, he suspended those measures for 90 days—reinforcing the belief that Trump would always yield under market pressure.Following the U.S.-China Geneva agreement, U.S. equities surged, with the S&P 500 delivering its best May performance since 1990, and its strongest monthly return since November 2023.Retail investors, in particular, found the TACO trade appealing—it provided what seemed like a clear roadmap for buying dips during Trump-induced sell-offs.But amid rising legal risks around Trump’s tariff actions and worsening fiscal concerns, this pattern may no longer be reliable.Trump Pushes Back—Markets Start to WorryOn Wednesday, May 28, when asked about the TACO trade during a press briefing, Trump angrily dismissed the question as “nasty” and misleading. He emphasized that his tariff adjustments were part of a negotiation strategy, not signs of weakness.Analysts at Kayne Anderson Rudnick warned that Trump’s frustration with the TACO narrative could make him more resilient and more gripping on some of these tariff trades—increasing uncertainty rather than reducing it.Yahoo Finance reported that policy unpredictability goes both ways: while investors continue to react to every headline, if Trump decides to stick to his tariff agenda, downside risk in equity and bond markets could become significantly more pronounced.S&P economists described the current environment as a rollercoaster for business planning and long-term investment, where frequent policy changes disrupt corporate decision-making and investor confidence.Find out more