Market participants begin anticipating a Trump policy reversal, or "TACO," when his assertive policies or rhetoric push US equities, Treasury yields, and energy prices to sufficiently extreme levels. What conditions are necessary for the next reversal to materialize?
According to analysis from Nomura Singapore's global FX strategist Craig Chan in a May 7th research note, "In three notable TACO cases, Trump tends to reverse course when our indicator reaches approximately 3.0 standard deviations or higher; a higher Z-score indicates greater market pressure for Trump to consider a TACO."
As of May 7th, this TACO indicator had declined to 1.7 standard deviations from 2.3 standard deviations on May 5th. This shift was triggered by a retreat in energy prices following statements concerning Iran, a decline in the 10-year US Treasury yield, and a rebound in US stocks. In other words, the market pressure has not yet reached the intensity that historically prompted Trump's reversals.
Within this analytical framework, the most stable signal comes from US equities, particularly the S&P 500 index, followed by the 10-year Treasury yield. Energy prices are not typically the core variable but have been pushed to the forefront during the US-Iran conflict. Should the US-Iran stalemate persist without a short-term resolution, leading to continued rises in oil and gasoline prices, the TACO reading could again approach critical levels.
Policy reversals are more likely to occur when the indicator nears 3 standard deviations. The framework monitors market distress rather than the frequency of Trump's statements.
The model tracks three asset classes: the S&P 500, the US 10-year Treasury yield, and energy prices—specifically spot Brent crude and US gasoline futures. The logic is direct: falling US stocks, rising long-term Treasury yields, and increasing energy prices are all interpreted as market pressure resulting from Trump's assertive policies or rhetoric.
The three primary case studies all occurred during the "Trump 2.0" era and were accompanied by significant shifts in policy tone or action:
1. On April 9, 2025, a 90-day suspension was granted for reciprocal tariffs on "Tariff Day." 2. On October 12, 2025, Trump retreated from the threat of imposing an additional 100% tariff on all Chinese goods. 3. On March 31, 2026, Trump hinted that the US would withdraw from Iran within two to three weeks.
In all three instances, the TACO indicator showed extreme readings around the time of the policy shift. The general empirical threshold is that when the reading approaches or exceeds 3 standard deviations, market pressure becomes sufficient to prompt a change in Trump's stance or actions.
During the April 2025 tariff episode, US equities provided the strongest signal. Trump announced reciprocal tariffs on April 2nd, followed by higher tariffs on some nations just after midnight ET on April 9th. US stocks fell sharply. Around 12:18 PM ET that day, Trump approved a 90-day suspension for trading partners who had not taken retaliatory measures and faced additional tariffs exceeding 10%, after which risk assets rebounded rapidly.
Prior to the reversal, the Z-score for the S&P 500 indicator peaked at 3.2 standard deviations on April 8th, compared to a 10-day average of just 0.8 standard deviations. Following the announcement of the suspension, the reading fell to 0.6 standard deviations.
The 10-year Treasury yield also signaled pressure at that time, rising to 2.1 standard deviations on April 8th. This was due not only to the tariffs themselves but also to broader market concerns about slowing global trade and growth, alongside discussions of reduced exposure to US assets by overseas investors. Energy prices were not a significant factor in this case, with a negative Z-score prior to April 9th. The primary driver was clearly the US stock market, followed by Treasury yields.
The second case occurred in October 2025. On October 10th, Trump announced a 100% tariff on all Chinese goods effective November 1st. The market immediately priced in a "new round of trade war," with the S&P 500 falling 2.7% that day, its worst single-day performance since April 10, 2025.
The Z-score for the S&P 500 indicator jumped from a near-zero five-day average to 3.1 standard deviations on October 10th. The 10-year Treasury yield had already begun reflecting pressure, with a five-day average of 1.9 standard deviations from October 6th to 10th, peaking at 2.3 on October 6th. Energy prices remained weak, with a negative Z-score. The framework indicated that pressure came from the sharp single-day stock market reaction to the tariff threat, not from oil prices. On October 12th, Trump walked back his stance on social media, stating there was no need to worry and that things would work out, which the market interpreted as a withdrawal of the 100% tariff threat.
The third TACO case was different from the first two. The US-Iran conflict began on February 28, 2026, leading to a surge in energy prices, a decline in US stocks, and a rise in long-term US yields. During the escalation, Trump threatened to "take Iran's oil" and mentioned potentially destroying Iranian power plants, oil wells, Kharg Island, and even desalination facilities if a deal wasn't reached soon.
By March 30th, the Z-score for the energy indicator had risen to 3.9 standard deviations, significantly higher than the readings for equities (S&P 500 at 2.4) and Treasuries (10-year yield at 2.0). A key change was the status of the Strait of Hormuz, which had been largely closed since the conflict erupted, making energy prices the primary source of overall market pressure. Rising oil and gasoline prices ultimately overshadowed the signals from stocks and bonds.
On March 31st, Trump told reporters in the Oval Office that the US would be leaving soon, perhaps in two or three weeks. Market pressure subsequently eased, reflected particularly in oil prices, gasoline prices, and US stocks. The TACO indicator fell from 3.9 standard deviations on March 30th to 1.8 by April 17th.
The current reading is not yet sufficient for a reversal, but the Iran risk persists. Pressure increased again in early May, with the TACO indicator rising from 1.8 on April 17th to 2.5 on April 29th, remaining elevated around 2.3 on May 5th. Subsequently, statements regarding a potential Iran ceasefire and Trump's comment that there was a "great chance" the war would end led to lower energy prices, lower Treasury yields, and higher stock prices. By May 7th, the reading had dropped to 1.7 standard deviations.
This level remains some distance from the historical critical zone near 3 standard deviations. Based on the previous cases, the market would likely need several more days of significant pressure for the TACO signal to become prominent again.
However, the risk has not been eliminated. If the US-Iran stalemate is not resolved near-term, already-high energy prices could rise further, potentially causing broader market contagion: oil prices fueling inflation concerns, gasoline prices increasing political pressure, and US stocks and bonds reacting in turn. In such a scenario, energy would continue to be the core variable in this potential TACO trade.
This framework has a boundary: not all market downturns are caused by Trump's policies or rhetoric. For instance, on August 1, 2025, the S&P 500 indicator reached 2.8 standard deviations primarily due to concerns about the US macroeconomic outlook, including weaker-than-expected July jobs data and impending tariff rate increases on specific partners set for August 7th. On November 18, 2025, the indicator reached 2.5 standard deviations due to an AI valuation correction.
These types of pressure differ from scenarios where Trump's assertive actions directly cause market volatility. The TACO trade aims to identify market pain points created by policy, not to mechanically attribute all high volatility to the White House. In the current US-Iran conflict, judging whether Trump will reverse course again depends less on a new statement and more on whether energy prices can push the overall reading back toward the 3 standard deviation threshold.
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