Adam Spatacco, The Motley Fool

Sat, May 31, 2025, 3:20 PM5 min read

• Investors' latest obsession is the TACO trade, which stands for "Trump always chickens out."

• The strategy is based on a pattern surrounding President Trump's tariff rhetoric over the last few months.

• History suggests investing in the S&P 500 remains lucrative as the TACO trade continues to unfold.

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Over the last couple of months, there has been one word largely dictating the direction of the stock market: tariffs.

For the first time in nearly two years, artificial intelligence seems to have been replaced by tariffs as the buzzword on every investor's lips following President Donald Trump's "Liberation Day" tariff announcements on April 2.

Since then, investors have been bombarded with a flurry of headlines and reports of negotiations with major trade partners such as the E.U. and China. Meanwhile, industry experts have tried to analyze the industries and product groups most vulnerable to the new tariffs.

In the wake of these developments, a new market strategy has been making the rounds on Wall Street as well: the "TACO" trade. Let's understand what this acronym means, and more importantly, explore how investors can take advantage of it.

Let's start with the basics. TACO is an acronym that stands for "Trump always chickens out." But what does this actually mean?

Per the nifty chart below, a clear pattern emerges every time Trump announces new tariffs and subsequently pulls back on these policies.

Ratcheting up the tariff rhetoric has consistently sent the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average into a tailspin. However, whenever President Trump has chosen to reverse course, stocks begin to rebound as you can see in the S&P 500 chart above.

Said another way, every time Trump feels the pressure and "chickens out," per se, on his most severe trade policies, investors quickly buy up stocks again. Thus, the TACO trade is essentially another way of saying "buy the dip."

The pattern described above reflects how stocks have broadly rebounded over the last several weeks as new trade deals materialize. That said, many of these tariff negotiations are still ongoing, and details could change overnight, so investors should look for diversified opportunities as opposed to honing in on an individual sector.