TACO
The ‘TACO trade’ has been lucrative for those counting on trade policy backflips. But as a U.S. court blocked tariffs, a more muted reaction suggests momentum behind this approach is fading.
Wall Street loves a good acronym, especially when it comes with an investing trend to get behind. The latest is TACO, short for ‘Trump Always Chickens Out.’ Yes, on-again, off-again tariff chaos has become so common that investors are actually counting on it.
This ‘buy the dip’ strategy is simple: capitalise on predictable market volatility when stocks decline after a tariff threat, and sell when a delay or reversal is announced. The sharpest sell-offs and quickest rebounds have typically happened in tariff-sensitive, cyclical sectors like consumer discretionary, tech, financials and energy. Individual stocks heavily reliant on the global supply chain – like Apple ($AAPL), Nvidia ($NVDA), Broadcom ($AVGO), TSMC ($TSM) – also saw big directional moves following tariff announcements.
It’s certainly not the first time we’ve seen trend-based momentum (and acronyms) drive markets. In 2013, it was ‘FANG’ referring to the four high-growth tech companies dominating the market: Facebook ($META), Amazon ($AMZN), Netflix ($NFLX) and Google ($GOOGL). Apple was added to the group in 2017, but a few years on, ‘FAANG’ was no longer fitting to describe tech and AI-driven momentum.
Enter the Magnificent Seven in 2023. Netflix was booted, but the group now included Microsoft ($MSFT), Tesla ($TSLA) and AI poster child, Nvidia. The name is a reference to the classic Western film, symbolising a powerful squad leading the charge. Fair enough: the Mag 7 accounted for over 50% of the S&P 500’s total return in 2023 and 2024.
TACO trades, on the other hand, might already be running out of spice.
Last week, a U.S. trade court blocked Trump’s tariffs from going into effect, ruling that the President overstepped by imposing them in the first place. The Trump administration was quick to challenge it, and a U.S. appeals court temporarily reinstated tariffs. Those moves should have been enough to trigger a bout of volatility that has become all too familiar lately. Instead, the stock market was largely indifferent, and the S&P 500 ended just 0.4% higher.
When Reuters spoke to a number of fund managers, many felt that Trump-induced volatility was just becoming noise. ‘The market has become numb to the tariff issue because the changes occur from multiple parties on a daily basis,’ said Tim Ghriskey of Ingalls and Snyder. It’s like the boy who cried wolf.
Jim Caroll of Ballast Rock Private Wealth pointed out that ‘it's just impossible to decipher all of these shenanigans,’ adding that being anything in between a long-term investor or active trader is a recipe for problems at the moment.
While fund managers may be a little tired, Trump isn't: aluminium and steel tariffs announced earlier this week were the latest trade movement.
The challenge for investors is whether to get involved in a high-stakes game of chicken. For some, the risks and rewards of a TACO strategy may be worth it. Others will want to be on the right side of the fence when the dust settles.
This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.
