economy
Many on Wall Street saw this 'TACO' coming as Trump's brinkmanship starts to lose grip on market
A growing cohort of investors has come to believe Trump's escalation tactics follow a familiar script.
TL;DR
- Investors are increasingly employing the 'TACO' trade (Trump Always Chickens Out), viewing escalations as buying opportunities.
- Market positioning prior to Trump pausing strikes on Iran indicated anticipation of de-escalation.
- The market has grown accustomed to looking past Trump's extreme threats, with a belief that greater extremity increases the likelihood of compromise.
- Widely circulated analyses outline a cycle of escalation, market stress, pressure, and de-escalation driving asset rebounds.
- Each geopolitical selling bout has become progressively more muted, with shallower dips as investors lean into the TACO trade.
- Some see parallels with the U.S.-China trade conflict, where escalating tariffs and restrictions proved unsustainable.
- A new question arises: what happens if markets stop constraining aggressive rhetoric and policy?
- A lack of market reaction to recent events could be a warning that the market is not playing its traditional role as a governor on actions.