TACO Trade: US Stock Market Has A New Acronym To Rally Behind. Here's What It Means

The word "TACO" typically brings to mind the delicious Mexican dish enjoyed worldwide as a popular fast food. However, in the world of finance, the term has taken on a new meaning: "Trump Always Chickens Out." This acronym emerged in response to US President Donald Trump's pattern of announcing steep tariffs and then backing down. Investors have observed that markets often rebound after such reversals, making the TACO acronym a tongue-in-cheek reflection of how Trump's trade threats-and retreats-impact stock movements.

According to The Hill, the term was coined by Robert Armstrong, a writer for the Financial Times, and is intended to capture how markets have fallen on Trump's vow to impose steep tariffs on imports to the United States and then jump back up when Trump announces pauses on those tariffs.

Market analysts are advising that Trump's tariff threats shouldn't be taken at face value, given the president's history of backing down or modifying his stance after making bold announcements. 

Recently, Trump threatened to impose a 50% tariff on goods from the European Union, which initially caused markets to plummet. However, following a phone call with European Commission President Ursula von der Leyen, Trump gave the EU until July 9 to reach a deal, and markets responded positively, with the Dow Jones surging 721 points.

"Wild threats by Trump are not unusual," Salomon Fiedler of Berenberg, a German bank analyst, wrote in a note on Friday, reported The New York Times. "Given the damage the US would do to itself with this tariff, he will probably not follow through."

This pattern of behaviour has led investors to speculate on "TACO trades", betting that Trump will ultimately back down from his tariff threats. Similar instances include Trump's "Liberation Day" tariffs in April, which were put on hold after initially causing stocks to fall, and his China tariffs, which were lowered after being threatened at triple-digit levels. As a result, financial analysts are cautioning that Trump's tariff threats are more of a negotiating tactic than a fixed policy, and markets are reacting accordingly.

Investors and traders are exercising caution, as the presence of the "TACO trade" suggests that tariff-related market declines are likely to be less severe than before. Meanwhile, the term "TACO" - an acronym for "Trump Always Chickens Out" - is gaining popularity on social media, where users are actively sharing memes, videos, and GIFs about it.