When it comes to high-stakes games like poker, players often rely on subtle cues to gauge their opponents' intentions. In the case of Trump, however, his approach seems more akin to an amateurish bluff than a strategic play. His tactics are characterized by intimidation and bombastic threats intended to coerce his rivals into folding their cards.
Enter Team TACO—a group of analysts who firmly believe that Trump consistently backs down when faced with real pressure. This week, they called out his latest bluff with confidence.
Following a weekend filled with unease triggered by Trump’s alarming assertion on Sunday about potentially using aggressive measures to annex Greenland and imposing tariffs on European nations that opposed him, savvy investors in the international markets should have recognized this as just another bluff. While many were caught up in the ensuing panic, the astute investors quickly saw through it.
After an anxious long weekend for American investors, the stock and bond markets predictably reacted with chaos on Tuesday, as the S&P 500 plunged over 2 percent, marking its steepest decline since October. The VIX index, which gauges market volatility and fear, surged, while the US dollar weakened and gold prices climbed, as investors flocked to this reliable safe haven.
Yet even before the truth behind Trump’s bluster began to surface—when he ultimately retracted his aggressive stance on Greenland and softened his tariff threats—the markets had already begun to rebound. For those investors possessing the insight to see through Trump’s theatrics, Tuesday proved to be an exceptionally profitable day.
Towards the end of the New York trading session, Trump’s announcement about scaling back his tariff threats acted like a rocket booster for the S&P 500, lifting it by 1 percent in the final trading hour.
However, embracing the TACO strategy is not without its risks. As illustrated in Aesop’s fable of The Boy Who Cried Wolf, there’s always the chance that the threat may eventually materialize, leading to dire consequences.
Thus far, though, the strategy has proven effective. When Trump first unveiled his so-called Liberation Day tariffs last year, markets initially spiraled downwards but soon recovered all lost ground—and then some—after his threats were diluted. Many investors who panicked found themselves caught off guard and suffered financial losses as the markets rebounded.
Ironically, the success of the TACO trade hinges on the initial chaotic reaction of the market to Trump’s often outrageous policy proposals. If investors maintained a level-headed response to his threats of destabilizing the global economy, it would diminish his motivation to backtrack.
For the TACO strategy to thrive and its proponents to profit, it is essential that the markets react with turmoil, forcing Trump to respond to the resulting fallout.
Trump keeps a close eye on the feedback from equity and bond markets, interpreting these signals as an immediate assessment of his performance. Yet, it’s important to note that the week’s market recovery didn’t completely erase the losses incurred on Tuesday. At the time of writing, futures for the S&P 500 showed a modest increase of about one-third of a percent, while the more volatile Nasdaq futures were up by 0.5 percent.
But we cannot attribute this week’s market movements solely to Trump’s actions. European leaders, including French President Emmanuel Macron, British Prime Minister Keir Starmer, and Danish Prime Minister Mette Frederiksen, pushed back emphatically against Trump’s posturing. After enduring months of being sidelined, they finally articulated some of their strongest opposition yet, effectively calling Trump’s bluff.
As a result, Trump’s retreat signifies a withdrawal from any ambitions he had regarding Greenland. However, the agreement he has reached with NATO Secretary-General Mark Rutte remains vague and lacks substantial details. Therefore, we might still encounter some bumps down the road.
For now, however, let’s celebrate TACO Tuesday and its advantageous outcomes.
