Investors are typically wary of stock market volatility, but President Trump’s trade and tariff war updates have notably influenced market fluctuations since February, when tariffs were announced on Canada, Mexico, and China.
The stock market experienced dramatic shifts, including a 19% drop between mid-February and early April, followed by a 20% rally starting April 9, after President Trump paused certain tariffs that had initially unsettled stocks on April 2.
Investor sentiments have swung between fears of economic stagnation or recession due to tariffs and optimism that negotiations might mitigate their impact.
The pattern continued when stocks fell on May 23, after Trump threatened 50% tariffs on the European Union, but rebounded on May 27 following his decision to delay these tariffs until July.
The S&P 500 saw over a 1% drop on May 30 after Trump’s strong statements on China trade but recuperated most of these losses by the day’s end as hopes emerged for more composed negotiations.
Wall Street has re-engaged with what is known as the TACO strategy, an acronym for “Trump Always Chickens Out,” noted by Financial Times writer Robert Armstrong. This approach involves purchasing dips in anticipation of a softening in rhetoric.
The fluctuations observed recently exemplify this strategy in practice. Following Trump’s initial bold threats and subsequent retreat, those who bought low on the S&P 500 and sold high in the days following gained a notable 2.7%. Tech stocks like the Nasdaq 100 and Palantir offered even greater returns of 3.2% and 6%, respectively.
President Trump’s trade confrontations with China intensified in April with mutual tariffs climbing to significant levels. This escalation disrupted supply chains, particularly affecting retailers dependent on low-cost imports.
However, relief came when Trump announced a temporary reduction of tariffs as a gesture of goodwill amidst encouraging trade discussions. Trust in this détente was short-lived, as aggressive remarks from Trump on May 30 renewed tensions.
In a statement on Truth Social, Trump accused China of violating trade agreements, undermining previous optimism. His dissatisfaction was explicit, and uncertainty looms over future market implications as participants continue to embrace the TACO trade, anticipating potential leverage on regulatory rhetoric.
Economic analysts are on alert, as growing concerns of recession may arise depending on the trajectory of trade negotiations and tariff policies.
