Wall Street is witnessing the resurgence of a familiar market strategy referred to as the “TACO” playbook. This nickname, standing for “Trump Always Chickens Out,” has gained traction as President Donald Trump has recently chosen to delay military action against Iran’s energy facilities. This decision aims to provide time for negotiations regarding the critical Strait of Hormuz, a pivotal waterway for the oil industry.
Daniela Hathorn, a senior market analyst at Capital.com, noted that the current market environment reflects a classic “TACO” scenario. She highlighted how Trump communicates intentions to escalate conflicts, only to retreat in the face of economic repercussions. This pattern leads many to believe that the U.S. administration is seeking a way out of the escalating tensions, though the specifics of that exit remain uncertain.
Adding to this sentiment, Nancy Tengler, CEO of Laffer Tengler Investments, remarked that her team has sensed the administration’s growing fatigue with ongoing conflicts and their impacts on market stability. In anticipation of a market rebound, her firm purchased S&P 500 call options on March 20, strategically positioning themselves ahead of the anticipated market movements. Their foresight proved beneficial when Trump announced on March 23 that military actions against Iran’s power plants would be postponed due to what he termed “productive” discussions.
Tengler emphasized the president’s awareness of the stock market’s influence on his political ambitions, particularly in light of the upcoming midterm elections. Wall Street is well-acquainted with the TACO dynamic; a similar pattern unfolded last April, leading to sharp declines in stock and bond prices after Trump proposed significant tariffs. His subsequent decision to pause these tariffs in favor of negotiations resulted in a notable market recovery, with the S&P 500 soaring nearly 37% by the end of that year.
Analysts have adapted to this pattern by creating measures like BCA Research’s “Trump Pain Point Index,” designed to predict potential shifts in Trump’s policies based on various economic indicators, including stock market performance and the president’s approval ratings. Recently, this index reached levels two standard deviations above its average, prompting discussions about whether another TACO maneuver might stabilize the markets.
While the potential for conflict resolution appears, the situation remains fluid and dependent on Iran’s response. Tehran has rebuffed a U.S. ceasefire proposal, which includes a full reopening of the Strait of Hormuz, contributing to heightened tensions and further increasing oil prices. As a result, experts like Felix-Antoine Vezina-Poirier of BCA Research caution against aggressive positioning for lower oil prices as geopolitical uncertainties persist.
Brent crude futures have surged over 40% since the onset of recent hostilities, while the S&P 500 has declined approximately 7%. Notably, both the Nasdaq and Dow have entered correction territory, each down more than 10% from their peak values. Trump, during a recent Cabinet meeting, expressed his expectations regarding oil prices and stock market behavior, indicating an awareness of the economic implications surrounding rising oil costs.
With oil prices exceeding $105 per barrel and the 10-year Treasury on an upward trend, strategists are increasingly focusing on protective measures against potential inflation and rising interest rates. Tim Urbanowicz, chief investment strategist at Innovator Capital Management, advised prudence in current market conditions, indicating that sustained elevated oil prices could lead to persistent inflation challenges, emphasizing that an easy resolution to these issues is not in sight.
