Stock market investors don’t have much to cheer about in the second Trump term, except perhaps for a new and almost flawless trading strategy — the TACO trade.
On Tuesday, the first trading day following the Memorial Day holiday, stocks jumped back up.
This ride on the Trump tariff roller-coaster wasn’t the first, and nowhere near the most violent.
That trophy belongs to the period from April 2 through April 9, the “liberation day” tariff carousel.
Still, the in-and-out running of Trump’s tariff policies carries some important lessons for investors — and anyone else obsessing over Trump’s thought processes.
With the possible exception of the TACO trade, a novel and nearly perfect trading strategy, stock market investors have little reason to celebrate during the second Trump administration.
“Trump Always Chickens Out” is what the acronym, which was created by Financial Times columnist Robert Armstrong, stands for. In an FT podcast, Armstrong stated that “acronyms are very powerful, especially when they remind people of foodstuffs.”. ().
The market’s reaction to Trump’s threat to impose a 50% tariff on imports from the European Union over the past few trading days has highlighted the fact that his observation suggests a strategy for making money from stock trades in an unpredictable environment. On June 1, nine days later, the tariffs were supposed to go into effect.
That threat came on Friday, May 23 from Trump. On that particular day, the Nasdaq index dropped 188 point 53 points, or 1 percent, while the Standard and Poor’s 500 index dropped more than 39 points, or 0 point 67 percent.
Trump declared on Sunday, two days later, that he would postpone the tariff hike until July 9. The first trading day after the Memorial Day holiday, Tuesday, saw a sharp increase in stocks. The Nasdaq increased by almost 462 points, or 2.47 percent, while the S&P increased by 118.72 points, or 2.05 percent.
Observe how the TACO trade operates: Buy the dip, or the lower prices after a Trump tariff announcement, and sell at the higher prices when stocks rise again due to Trump’s unavoidable chickening-out.
Because the recovery was stronger than the decline, you’ll notice that the fall and rise weren’t symmetrical. There is no simple explanation for that, other than the possibility that hope is a more powerful emotion than despair.
Although it wasn’t the most violent, this was not the first ride on the Trump tariff roller coaster. During the “liberation day” tariff carousel, which runs from April 2 to April 9, that trophy is included.
As you may remember, Trump declared a series of “reciprocal” tariffs on all U.S. S. . trading partner, as well as a few non-trading partner jurisdictions, such as those with no actual human habitation. The new tariffs had a 50% maximum rate.
Trump assured reporters that the markets would soar. Sadly, no. Following Trump’s announcement, the stock market plummeted, with the Nasdaq dropping nearly 6% and the S&P dropping nearly 5% the following day. Since a fall in March 2020 brought on by a pandemic, it was the worst day for the markets.
Following Commerce Secretary Howard Lutnick’s declaration that “the President is not going to back off,” both indices continued to fall. “.”.
It clouded Lutnick’s crystal ball as well. In order to give time for tailored bilateral talks, Trump announced a 90-day pause on April 9. There was a TACO relief rally as a result: the S&P saw its third-largest one-day percentage gain since World War II, up 474 points, or 9.52 percent. The Nasdaq experienced the second-largest one-day percentage gain in its history, rising 1,857 points, or 12 points, 16 percent.
Nevertheless, neither increase returned those indices to their pre-Trump “liberation day” levels on April 2. Although no proof has surfaced, it is also true that the downdraft and updrafts have raised suspicions that White House insiders who have advance notice of the announcements are trading stocks based on that knowledge.
Sen. D-Calif. Adam Schiff. stated in a tweet on April 9 that insider trading is made more risky by Trump’s “continual gyrations in policy.”. Does anyone in the administration have advance knowledge of Trump’s most recent tariff reversal? Did anyone purchase or sell stocks and make money off of the public’s suffering?
The markets still tremble with each new tariff announcement and bounce back with each reversal because average investors still don’t fully understand the TACO trade. There might still be some fear that the tariffs will remain in place this time.
The sentiment behind the acronym is clearly something Trump dislikes. At a press conference on Wednesday, he responded to a question about it by saying, “It’s called negotiation.”. “That’s a disgusting question,” he continued. The largest embarrassment facing his tariff policy, however, isn’t the acronym: on Wednesday, the U.S. S. The majority of Trump’s tariffs, including the levies imposed on April 2, were declared invalid by the Court of International Trade because he lacked the statutory authority to do so.
However, investors and anyone else fascinated by Trump’s thinking can learn some valuable lessons from the ins and outs of his tariff policies.
First, Trump has reversed Theodore Roosevelt’s adage to “speak softly and carry a big stick” by speaking loudly while carrying hardly any stick at all. The first is a corollary, which is that it might not be wise to panic over a brief market downturn brought on by Trump.
Ben Carlson, a money manager, illustrated that point on his Wealth of Common Sense website. He wrote, “What if you panic bought back the following day after panic selling when everything looked the worst, just before that crazy 10 percent up day in early April [that is, April 9]?”.
Carlson calculated that investors who remained fully invested in the S&P 500 during the turmoil ended up with a gain of 0.7 percent for the year through April 9. The year-to-date loss for those who panic-sold and missed the recovery was 8.1%.
Not just when it comes to tariffs, Trump’s tendency to act with bluster has influenced many of his policy decisions in his second term. Some of those institutions have made preemptive agreements to prevent him from carrying out his threats against law firms and universities because they sound so heinous and determined. Trump’s fondness for bullying weaklings has not been negotiated by the capitulators, as I have documented.
Trump’s tendency to let rhetoric handle the difficult task of formulating policies instead of meticulously crafting them to ensure they are both legally and constitutionally sound has been picked up on by some of his opponents. They now realize the likelihood of success with a full-frontal counterattack.
Four significant law firms filed lawsuits in response to Trump’s executive orders that attacked them, making that clear. In three of the four cases, federal judges have granted summary judgment against the government; the fourth case is still pending a judge’s decision.
Focusing on the executive orders’ basic shortcomings, the judges have largely determined that they violate the firms’ rights to equal protection under the law, due process, and the First Amendment, among other issues.
Judge Richard Leon of Washington, D.D.C., delivered the most scathing criticism of the Trump administration’s legal team on Tuesday. who said that Trump’s executive order against WilmerHale was “unconstitutional.”. in its wholeness. “”.
By my count, Leon used 27 exclamation points to punctuate his order, expressing his extreme frustration with the caliber of the government’s arguments in his courtroom. In the first line of his order, he stated, “An independent judiciary and an independent bar willing to tackle unpopular cases, no matter how daunting, are the cornerstone of the American system of justice.”. “This was something the Founding Fathers knew!” (I don’t think I’ve ever read a federal judge’s order with even one exclamation point, much less 17. ).
The same lack of attention to detail is evident in Trump’s tariff orders. Even by their own standards, they are economically nonsensical. They are predicated on a basic misinterpretation of who is responsible for paying the tariffs; contrary to Trump’s assertions, consumers bear the burden, making them a tax on Americans rather than exporters or foreign governments. They won’t succeed in their declared objective of reintroducing manufacturing to these lands.
Furthermore, any impact that Trump’s hair-trigger reversals may have had is undermined. This is particularly true of the most recent chickening-out, the European Union tariffs that lasted for just two weekend days. University of Michigan economist Justin Wolfers calculated that this was “18 percent of a Scaramucci,” a humorous measure based on Anthony Scaramucci’s 11-day tenure as Trump’s communications director during his first term.
All of this emphasizes the value of the TACO trade—that is, if one has the fortitude to remain calm in the face of a Trump-inspired storm.
But that doesn’t mean they’re unimportant or that the economy is back to where it could have been after the round-trip of tariffs-on-tariffs-off.
with assurance in U. S. An international trade system that has existed since World War II and that benefited the United States was disrupted, as was economic growth. A. more than any other nation on the planet — plunged into turmoil for no discernible reason, and the long-term effects of Trump’s trade war are uncertain.
It simply means that, at least in the short term, it is safe to assume that Trump will back down. He has been doing this since the day of the inauguration.
