You Had a Good Run, TACO
Mock the man, break the loop. That’s where we are now.
You can smell it in the tape: something fundamental has shifted.
Back in May 2016, Donald Trump posed with a taco bowl and declared, “I love Hispanics!” Nearly a decade later, that gesture has aged into a metaphor far more consequential than anyone expected. Because now, in the middle of 2025, the financial markets are digesting a different kind of taco, one born not of cultural pandering, but behavioral pattern recognition.
Wall Street has come to embrace the acronym TACO, short for Trump Always Chickens Out. What began as snark evolved into strategy. Markets, for all their touted efficiency, took nearly ten years to decode a habit that foreign leaders had clocked as early as 2017: Trump’s tendency to bluff big and then backpedal when the stakes got real. His penchant for sudden tariff declarations would send equities tumbling, only for a reversal to arrive days later, triggering euphoric rebounds. Traders, recognizing the loop, stopped panicking and started positioning for the retreat. The game was on.
When Trump declared April 2 as Liberation Day, announcing sweeping tariffs on virtually all imports, the S&P 500 plunged by over twelve percent in the following days. Investors braced for impact. But a week later, on April 9, Trump hit pause. A 90-day freeze on most new tariffs sent stocks roaring back, marking the best trading day in nearly two decades. On May 12, the White House froze its steep 145 percent tariffs on Chinese goods, slashing them to 30 percent. Optimism surged. Then came the May 23 threat of a 50 percent tariff on European imports. By May 25, after a cordial call with EU leadership, Trump backed off and rescheduled everything to July. European markets rallied.
This rhythm has been absurdly consistent. Trump pushes. Markets recoil. Trump pulls back. Markets recover. And the Street profits.
The mechanism behind the TACO trade is as cynical as it is effective. Traders anticipate that Trump’s bark is worse than his bite. They buy when fear peaks, betting on a reversal that history suggests is more than likely. This behavioral arbitrage became a defining characteristic of the 2025 market. Despite a bruising April, equities managed to claw their way back into the green by late May. The S&P 500 even posted modest gains. Volatility became opportunity, not risk.
But now, something has changed.
Trump has discovered the acronym.
At a recent press briefing, a reporter asked about the “TACO” trade. Trump bristled, visibly angered. “I chicken out? I’ve never heard that… Don’t ever say what you said. That’s a nasty question.” The emotional overreaction did more than confirm the label. It hinted at something deeper, a crack in the president’s self-image. Being framed as weak struck a nerve. And when Trump gets wounded, he gets erratic.
The markets should be worried.
Until now, the TACO trade thrived on a kind of implicit game theory. Trump wanted strong markets. Investors knew he preferred headlines to follow-through. They priced in the eventual walk-back. But once the subject becomes personal, all bets are off.
If Trump, stung by the label, decides to defy expectations and the July deadline arrives with EU tariffs going live without delay, the consequences could be severe. Up until this point, the market reaction has served as a circuit breaker. Now, with investors assuming another retreat, the absence of panic may actually encourage Trump to follow through. If that happens, the fallout won’t be a mere correction. It’ll be a reckoning.
The legal backdrop only complicates things. Federal courts recently ruled that Trump overstepped his authority by enacting blanket tariffs under emergency powers. That ruling was briefly enforced before being stayed on appeal. While the White House scrambles to defend its legal footing, investors have been betting that the judiciary will act as a fail-safe. But there’s no guarantee. A favorable ruling could embolden Trump. A loss might radicalize him.
The irony here is rich. Trump built his brand on unpredictability. Yet the markets managed to render that very unpredictability predictable. They quantified the chaos and repackaged it into tradeable conviction. But now, awareness has destroyed the edge. The feedback loop has been broken.
Behind the bravado, Trump has always been a man of image. He responds to optics, not outcome. That makes him incredibly manipulable, but also deeply reactive. The idea that his trade policies were being mocked and monetized cuts to the core of his persona. It’s no longer about strategy. It’s about pride.
“They’re not trading tariffs anymore. They’re trading me.”
—imagined internal monologue, 1600 Pennsylvania Avenue
Wall Street’s biggest mistake wasn’t underestimating Trump. It was assuming he wouldn’t notice.
Foreign leaders, to their credit, figured this out early. They knew flattery worked. They knew complexity bored him. And they knew that if they could survive the announcement, the enforcement would likely fizzle. But investors were slower to adapt. Despite his first term and despite his record, many still clung to the idea that a businessman-president would govern rationally. That assumption aged poorly.
Even now, as the legal system grapples with the scope of executive tariff powers, the market has priced in softness. Tech stocks rallied when smartphones and chips were exempted from China tariffs. Bond yields spiked, then stabilized. The VIX swung wildly but ultimately retreated. Complacency has crept in. Everyone expects another climbdown.
That confidence could be misplaced.
If Trump feels compelled to break the cycle to salvage his image, the market’s delayed reaction could exacerbate the damage. A tariff threat no longer triggers panic. But a tariff enforcement without retreat, that would. Investors have stopped preparing for pain. They’ve started assuming the game is rigged in their favor.
But the game has changed.
This is no longer a matter of policy. It is psychological. The president has seen the cheat code, and now he’s insulted by it. The idea that traders are profiting off his reversals doesn’t just annoy him. It mocks him. And when the leader of the world’s largest economy decides he has something to prove, the consequences are rarely contained.
In the coming weeks, the focus will remain on July 9, the deadline for the postponed EU tariffs. But the real deadline may come sooner, the moment Trump decides that being seen as weak is more damaging than tanking the market. The moment the trade becomes about ego, not economics.
At that point, the TACO trade won’t just be broken. It will be dangerous.
Wall Street is used to pricing risk. But ego isn’t quantifiable. It doesn’t respect support levels or yield curves. It just reacts. And when it does, the cost isn’t volatility. It’s whiplash.
For now, the markets remain calm. But beneath that calm lies a fragile assumption. Trump will blink again. Maybe he will. Maybe he won’t.
The trade worked because the pattern held. If the pattern breaks, the illusion of control goes with it. And when that moment comes, the market won’t get a warning. It will get a margin call.