In the ever-evolving landscape of global finance, a new term has emerged that encapsulates the market’s reaction to President Donald Trump’s trade policies: the “TACO trade,” an acronym for “Trump Always Chickens Out.” Coined by Financial Times columnist Robert Armstrong, this term reflects a pattern observed by investors where initial market downturns, triggered by Trump’s aggressive tariff announcements, are often followed by rebounds when those threats are softened or delayed .
This strategy has been particularly evident in recent months. For instance, on May 23, 2025, Trump announced a 50% tariff on European Union imports, causing the S\&P 500 to drop by 0.67% and the Nasdaq by 1%. However, just two days later, he deferred the tariff increase until July 9, leading to a significant market rebound, with the S\&P rising by 2.05% and the Nasdaq by 2.47% on the next trading day .
A more dramatic example occurred in early April 2025, dubbed “Liberation Day,” when Trump announced sweeping tariffs on all U.S. trading partners. The market reacted sharply, with the S\&P 500 falling nearly 5% and the Nasdaq nearly 6% the following day. However, after Trump announced a 90-day pause for negotiations on April 9, the S\&P surged by 9.52%, and the Nasdaq by 12.16%, marking some of the most significant one-day gains since World War II .
This recurring pattern has led investors to adopt the TACO strategy: buying stocks during the initial dip caused by tariff threats and selling after the inevitable policy reversal. While this approach has proven profitable for some, analysts caution that as the strategy becomes more widely recognized, its effectiveness may diminish .
President Trump, when questioned about the TACO acronym, dismissed it as a mischaracterization of his negotiation tactics, asserting that his approach has successfully brought trade partners to the table . However, the U.S. Court of International Trade recently invalidated many of Trump’s tariffs, including those announced on “Liberation Day,” stating that they exceeded presidential authority
The TACO trade phenomenon underscores the market’s sensitivity to policy announcements and the importance of strategic timing in investment decisions. While some investors have capitalized on this pattern, it’s essential to remain cautious and consider the broader economic implications of such volatile trade policies.
