What signals? As the US-Iran conflict continues to escalate, Wall Street is "sensing" signs of TACO's return

In the deadlock of the U.S.-Iran conflict, Wall Street seems to have finally seen signs of the return of “TACO trading.”

“TACO trading” (Trump Always Chickens Out) describes a mindset among Wall Street traders: whenever “certain events” cause the financial markets to drop too sharply, Trump backs down, such as during the trade war he previously instigated, his threats to take Greenland, and his criticisms of the Federal Reserve’s independence at various points.

Last week, Trump extended the pause on strikes against Iranian energy facilities to allow time for negotiations aimed at reopening the Strait of Hormuz, a crucial oil shipping lane in the region. Wall Street analysts thus “caught a whiff” of TACO.

Daniela Hathorn, senior market analyst at Capital.com, wrote in her latest report: “From a market structure perspective, this looks very much like a typical ‘TACO’ dynamic, with Trump sending signals to escalate, then backing down when faced with economic consequences.”

She added, “This further confirms the view that the U.S. government is actively seeking to end the war, even if the path to achieving ‘peace’ remains unclear.”

Nancy Tengler, CEO of Laffer Tengler Investments, stated that her team also sensed that the U.S. government was becoming increasingly weary of the impact of the Iranian conflict on the markets last week.

Her company bought call options on the S&P 500 index on March 20 (the Friday before last), betting that the market would rebound the following Monday. This trade ultimately paid off: on the morning of March 23, President Trump announced that the planned attack on Iran’s nuclear facilities would be postponed due to “productive” negotiations, which was in stark contrast to the threats he issued less than 48 hours earlier.

“This president—he cares about the stock market. He wants to win the midterm elections,” Tengler said.

Wall Street is already well-versed in Trump’s TACO strategy. After Trump announced a comprehensive tariff increase last April, the stock and bond markets plummeted; subsequently, he paused the plan and opted for individual negotiations with various countries, leading to a rebound in the stock and bond markets. The S&P 500 index rose about 37% by the end of the year, reaching multiple historical highs and extending its gains into 2026.

Analysts have also designed tools specifically for TACO, such as BCA Research’s “Trump Pain Point Index,” to predict when policy shifts might occur. This index tracks short-term stock market trends, long-term Treasury yields, mortgage rates, gasoline prices, inflation expectations, and presidential approval ratings.

Last week, the index soared to about two standard deviations above average, setting a historical high. However, Wall Street remains skeptical about whether Trump’s “unilateral TACO” will be enough to calm the markets.

“He can take TACO actions at will, but the reversal of this indicator ultimately depends on Iran’s participation, and so far, there are hardly any signs that Iran is willing to do so,” said Ole Hansen, head of commodity strategy at Saxo Bank, previously stated.

(Source: Caixin)