The TACO Trade Will Explode in July
Equity markets think that Trump will always cave when markets fall for fear of the political consequences. That’s setting up a binary outcome for market in the weeks ahead.
Photographer: Aaron Schwartz/BloombergDonald Trump has proven to be a lot more malleable than many in the financial world initially anticipated. Equity markets have adapted well, and now trade on the theme that Trump always chickens out (or TACO for short). That helped the S&P 500 gain 7% last month. But will this last? And will Trump capitulate again when the 90-day reciprocal tariff deadline comes?
It could go either way: Either Trump caves and equities go up, or Trump keeps at least some tariffs on and the economy goes into a recession and equities melt down. With the decision coming in July, I’m still mostly in the latter camp. This makes bonds a better bet, even in the face of legitimate concerns around debt and deficits.