A new phenomenon has established itself on the financial markets: the “TACO trade”. What’s actually behind it?
• From meme to established phenomenon: TACO
• Investors are betting on market recovery after Trump backs down
• High risk strategy
It is now a household word on the stock exchanges: the TACO trade. The abbreviation stands for “Trump Always Chickens Out” – Trump always chickens out at the end. What started as an ironic comment is now a serious trading strategy. Investors are specifically speculating that US President Donald Trump will withdraw his political and economic threats after the markets have already collapsed. But this bet carries significant risks for investors.
From a swipe to a stock market phenomenon: This is how TACO came into being
The so-called “TACO doctrine” stands for short-term escalations followed by withdrawal – for political, economic or tactical reasons. As of 2026, the term has also been used to characterize Trump’s foreign policy decisions, such as his unfulfilled threats regarding China or Iran, including his withdrawal of annexation threats against Greenland.
The term was coined by Financial Times columnist Robert Armstrong in early May 2025 in an opinion article about tariffs and their impact on US markets. Armstrong recognized a recurring pattern: The US government does not show much tolerance for market and economic pressures and quickly backs down when tariffs cause pain.
The pattern: shock, stock market earthquake, retreat, recovery
Some investors specifically try to profit from this. The TACO trade follows a clear sequence: Trump announces drastic measures (e.g. import tariffs), the stock markets collapse, some investors buy cheaply, Trump rows back, the markets recover – and the courageous investors make profits. Since Trump’s inauguration in January 2025, this behavior has been demonstrated several times in economic policy announcements. The most prominent case: the trade tariffs announced on “Liberation Day,” which were weakened again shortly afterwards. Many market participants are now specifically speculating on a turnaround after the first shock wave.
High risk: Why the TACO trade can become a trap
For investors, TACO behavior means one thing above all: increased volatility. Trump’s erratic policies are causing rapid and sometimes violent price movements on the markets. However, a certain amount of getting used to has now set in among market participants, meaning that many no longer take Trump’s threats completely seriously.
The central problem: There is always the danger that Trump will carry out his threats at some point – with potentially significant consequences for the markets and thus for investor portfolios. Anyone who relies on the popular “Buy the Dip” strategy and buys cheaply after price drops can achieve short-term profits, but also carries a high risk.
Editorial team finanzen.net