Is the ‘TACO trade’ Wall Street’s
 secret sauce?

Tariffs today, tacos tomorrow?

That’s the running gag on Wall Street, where President Donald Trump’s tariff theatrics have inspired a crisp two‑step known as the Trump Always Chickens Out—or simply, the TACO trade.

Trump turns up the heat—and the humour

On Wednesday, CNBC’s Megan Casella asked the President whether analysts’ “TACO” tag suggested he habitually backs down from tariff threats. Trump’s reply: a grilling worthy of a fajita pan. “That’s a nasty question,” he barked, insisting his tariff U‑turns are nothing more than “negotiation.”

The Oval Office décor may still be neutral, but the mood? Positively chipotle.

How the recipe works

1. Threaten a fiery tariff: markets grimace
2. Let it marinate 48 hours: lobbyists call, allies grumble, futures wobble like jelly
3. Dial the heat down: Trump delays or downsizes the levy—cue relief rally

Bon appétit.

Real‑world sizzles and flips

In practice, the three‑step TACO method plays out in markets as follows:

• EU 50 % tariff threat (23 May): stocks slid into the red by Friday’s close. Two days later the deadline was moved to 9 July, sparking Tuesday’s bullish bounce

• “Liberation Day” (2‑9 April): sweeping tariffs sent the US 500 tumbling nearly 5%—its worst day since March 2020—only for a 90-day pause to ignite a 9.52% single-session surge, the third-biggest jump since World War II

IG's Chris Beauchamp summed it up: “TACO trade triumphs once again.” Investors bite on the asymmetric flavour—drops are sharp but rebounds often overshoot, leaving well‑timed traders stuffed.

Market volatility creates opportunities

Market swings triggered by tariff news have generated an observable pattern that some traders monitor closely. Many expect the President to soften initial proposals and therefore position for a potential rebound once volatility eases. While the so-called TACO trade has become a widely discussed tactic, outcomes depend on timing, market depth and broader macro conditions. Sharp reversals may occur, but further declines are equally possible and losses can exceed deposits.

The asymmetric nature of tariff-driven moves—initial declines occasionally followed by larger recoveries—offers a specific risk-reward profile rather than a guaranteed result. Plenty of investors still prefer to reduce exposure when headlines hit, ensuring that price fluctuations remain a prominent feature of this news-sensitive environment.

Political implications

The TACO trade's effectiveness has led to speculation about its potential impact on the President's political standing. Former White House strategist Alyssa Farah Griffin says traders calling Trump's bluff could be a "win" for the President if Trump refrains from celebrating each tariff reversal. Meanwhile, concerns have also been raised about the possibility of insider trading related to tariff announcements, which has drawn the attention of some members of Congress.

Final bite

Markets hate uncertainty but adore a repeatable snack. Until the White House swaps tacos for something heartier, investors will keep ordering the same combo: buy the dip, hold the guac and wait for the next tariff tweet.