The TACO trade is the new Trump trade. Here's what to know about the meme ruling the stock market.

A new market strategy dubbed "TACO" (Trump Always Chickens Out) has emerged, where investors buy stocks following President Trump's tariff announcements, anticipating subsequent reversals. This strategy has proven profitable as the market tends to recover after initial dips caused by tariff threats, exemplified by rallies following tariff delays on EU goods and pauses in the trade war with China. While effective in the short-term, some analysts warn that continued reliance on this pattern could lead to a damaging economic downturn if trade deals are not reached before tariff pauses expire.

Analysis

A market strategy, termed "TACO" (Trump Always Chickens Out), has gained traction among investors, predicated on buying equities following market dips triggered by President Trump's tariff announcements, in anticipation of subsequent policy reversals or delays. This approach has demonstrated short-term efficacy, as evidenced by market recoveries following such events. For instance, after President Trump's "Liberation Day" tariff announcement on April 2 led to an S&P 500 decline of over 12%, a subsequent 90-day pause announced on April 9 catalyzed a significant rally, including the S&P 500's best day in nearly two decades. Similarly, a framework trade deal with China in mid-May, involving a 90-day tariff reduction, helped the S&P 500 recover its April losses and gain over 1% since the announcement. More recently, a threatened 50% tariff on the European Union, initially causing a market slide, was followed by a delay until July 9, prompting an S&P 500 rebound of nearly 2%. This pattern has led some analysts, like Eric Sterner of Apollon, to suggest the President is highly responsive to stock market performance. The general market sentiment surrounding this strategy is currently positive (sentiment score 0.55) but carries a speculative tone, with these trade policy shifts having a notable market impact (score 0.65). While retail investors have increasingly engaged in this dip-buying, and the S&P 500 (SPY) shows positive sentiment (0.6), concerns persist about the long-term viability. Sterner warns that continued reliance on this pattern without achieving substantive trade deals before tariff pauses expire could precipitate a damaging economic downturn, although this is not Apollon's current base case. This contrasts with the earlier "Trump trade" enthusiasm for assets like Tesla (TSLA, current sentiment 0.0) which eventually soured as trade war concerns mounted.

Key Decisions for Investors

• Investors might consider tactically buying significant market dips precipitated by new tariff announcements, acknowledging the observed pattern of policy reversals, but should recognize the speculative nature and elevated market impact of this strategy.
• Closely monitor upcoming tariff deadlines and the substantive progress of trade negotiations, as these events are critical catalysts that will determine the continued viability of the 'TACO' trade and influence broader market direction.
• Exercise caution regarding the medium to long-term sustainability of this trading pattern, as a failure to secure concrete trade deals and the actual implementation of threatened tariffs could lead to a sharp market correction and increase recessionary risks.