After U.S. President Donald Trump stoked investor anxiety with hard-line remarks and then offered a last-minute compromise that sent stocks rebounding, the pattern has been repeating in financial markets. Wall Street experts call it "taco trading," short for Trump Always Chickens Out (TACO).
A term that began as a light coinage by a Financial Times (FT) columnist has, one year into the launch of the second Trump administration, taken hold as a dominant short-term strategy on Wall Street. In the past, when a compromise was announced after hard-line remarks, major stock indexes showed a clear pattern of jumping sharply in the short term immediately afterward.
But recently, as investors have grown familiar with this formula, the actual rise in indexes after compromise announcements has visibly narrowed compared with before. That is because a preemptive pattern has strengthened in which investors hold on without selling during fear phases, or even buy.
Since the start of Trump's second term, many of the stock market's biggest up days have coincided with moments when the tariff stance or military tensions in the Middle East eased. As of the 9th (local time), exactly one year earlier on Apr. 9 last year, President Trump announced a 90-day deferral of widespread reciprocal tariff measures. On the next trading day after that announcement, the large-cap S&P 500 index surged 9.52%, the tech-heavy Nasdaq jumped 12.16%, and the blue-chip Dow Jones 30 Industrial Average soared 7.87%. For the S&P 500, it was the biggest one-day gain since the 2008 global financial crisis. Then, when the United States and China announced a 90-day tariff truce on May 12, the S&P 500 rose 3.26% and the Nasdaq climbed 4.35%.
According to The Wall Street Journal (WSJ), in the roughly 300 trading days since Trump returned to power, nine of the top 10 gain days for the S&P 500 came during phases of easing tensions related to tariffs or Iran. If one had bought stocks when President Trump issued strong threats on a given issue and the market wobbled, and then sold when signals of easing—such as tariff deferrals or truces—sparked a sharp rebound, the cumulative return would have reached 52%. By contrast, if one had bought S&P 500-related assets on Jan. 20, 2025, the day the second Trump administration began, and held without trading in between, the return would have been 12%. WSJ said this shows Wall Street has effectively treated the repeated pattern of threats followed by retreat from President Trump as a tradable signal.
However, a closer look at recent index action shows the market's response to the taco trading pattern has weakened markedly compared with before. The 9th was the first New York Stock Exchange (NYSE) trading day after the United States announced a two-week truce with Iran. The large-cap S&P 500 and the blue-chip Dow Jones 30 Industrial Average rose only 2.5% and 2.8%, respectively. The index jumps that had neared double digits during the 90-day reciprocal tariff deferral shrank to about a quarter of that level in just over a year.
Experts say the rebound in indexes has narrowed because investors began anticipating the president's last-minute pullbacks and moving preemptively. WSJ said traders have been "conditioned" to expect late deferrals. As the same pattern of threats followed by talks repeated, the market increasingly bought stocks even before political tensions peaked. Reuters, citing a quantitative portfolio manager, noted, "Investors no longer react to fearful markets with the one-way selling we used to see." In short, because some optimism is priced in right after the threats, the structure has shifted so that once an official compromise emerges, the follow-on buying is not as strong as before.
In the past, markets fell sharply right after threats and then surged after withdrawals were announced, a pattern that was relatively clear. Now, with investors' preemptive buying overlapping with the slower normalization of real-asset markets, market reactions have grown more complex. As a result, while TACO trading still works as a short-term strategy, some analyses say it has become harder to reap big profits with the simple approaches of the past.
Michael Reynolds, vice president at asset manager Glenmede Investment Management, said in an interview with the business magazine Fortune, "Investors want to apply a repeated pattern directly to future investments, but it's risky to overgeneralize these cases." The point is that if Trump actually pushes through a political threat when expectations of "another deferral this time" are piled up excessively, the market—having failed to fully price that in—could suffer a bigger shock all at once.