"TACO" Bets Pay Off On Wall Street, Yahoo Finance Reports

It was another week of policy pivots, back-and-forth trade headlines, and economic data that did little to anchor investor expectations, Alexandra Canal reported for Yahoo Finance.

The assumption that “Trump Always Chickens Out” has fueled a market tailwind in recent months, as traders bet on policy reversals. I Photo: Nemoshirt Clothing

Amid the chaos, one phrase kept surfacing across Wall Street: the “TACO” trade. An acronym for “Trump Always Chickens Out,” the term captures a growing belief among investors that the president talks tough on tariffs but rarely follows through.

That assumption has fueled a market tailwind in recent months, as traders bet on policy reversals—buoyed by an initial U.S.–China tariff de-escalation earlier this month.

Despite the headlines, markets had largely leaned into the notion that Trump’s tough talk seldom results in equally tough action. It’s a bet that has paid off: not only have stocks erased their “Liberation Day” losses, but the S&P 500 also posted its best May since 1990 and its best overall month since November 2023.

Still, while some investors continue to rely on the pattern, others warn that the strategy may be running out of steam.

“We told Donald Trump that we have this ‘TACO’ trade,” said Julie Beale, chief market strategist at Kayne Anderson Rudnick, referencing a reporter’s question to Trump earlier in the week.

In response, Trump denounced the term, defended his trade stance, and brushed off the question as “nasty.”

Beale added: “I worry that actually makes him bear down a little bit more and decide to be more resilient and more gripping on some of these tariff trades. So, I have a little bit of a concern that it creates actually more uncertainty.”