MW Investors in the 'TACO trade' should study the other side of the menu, strategists say
By Joy Wiltermuth
Investors accustomed to the "TACO trade" whenever stocks lose their footing as a result of President Donald Trump's tariff threats might want to get acquainted with another side of the menu.
The "Trump always chickens out" trade emerged in May, when the mood - and stock prices - began to rally off the April 8 lows.
Success in "buying the dip" has encouraged investors to "go long" the TACO trade, which can limit the downside risk of U.S. assets, including stocks, according to Andrea Cicione, head of research at GlobalData, TS Lombard, and strategist Daniel Von Ahlen.
This newfound confidence helped the S&P 500 index SPX and Nasdaq Composite Index COMP return to record highs in June. But as this week has shown, the president's threat of "reciprocal" tariffs that shook Wall Street to its core only three months ago, never really went away.
Instead, Cicione and Von Ahlen argue that investors buying the dip also sold Trump a "call."
In other words: "In a bid to extract concessions from US trading partners, the US President seems willing to spend 'financial markets capital' whenever stocks are up," the duo wrote, in a Friday client note.
"Inevitably, this leads to volatility."
Trump this week threatened a slew of new tariffs against trade partners starting Aug. 1, with the rate on imported copper and goods from Brazil set at 50% and at 35% for some Canadian products.
Stocks were lower Friday, with the Dow Jones Industrial Average DJIA headed for a 1.2% weekly loss, the S&P 500 off 0.4% for the week and the Nasdaq flat after Trump's planned Canadian tariffs appeared on social media.
This comes despite lingering concerns about the dollar and appetite for other U.S. assets abroad. The ICE U.S. Dollar Index DXY was up 0.6% for the week, but down 9.8% in 2025 as of Friday.
The S&P 500 closed at a record high of 6,280.46 on Thursday, while the Nasdaq scored its own new 20,630.66 peak finish. The Dow Jones Industrial Average ended 0.8% away from its 45,014.04 record close from December.
"While policy-driven uncertainty continues, its impact on confidence seems to be diminishing," the TS Lombard team wrote, adding that the U.S. economy and corporate earnings will remain in focus.
Related: After the TACO trade, here comes the 'Trump collar.' What that means for stocks.
-Joy Wiltermuth
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July 11, 2025 12:19 ET (16:19 GMT)
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