TACO: when Wall Street bets on Presidential U-Turns

Surprise announcement, market slump, backpedalling, market rebound.

Since the start of the year, US investors have been performing a real balancing act in response to the sometimes bewildering decisions coming out of the White House. This phenomenon has a name: TACO, short for Trump Always Chickens Out.

In a recent article published in Tribune de Genève, Daniel Varela, Chief Investment Officer at Piguet Galland, shared his analysis of this presidential cycle and its impact on the markets.

“We came across the term a few weeks ago, with a hint of surprise – it precisely described the assumptions we had made from the start of the year,” he explains. “While there were many fears surrounding Donald Trump’s arrival in power, our analysis of the first term concluded that he wasn’t irrational, but rather pragmatic and transactional. Above all, he has very little tolerance for falls in the financial markets.”

A predictable behaviour… but a risky one

The scenario repeated itself this spring: after the announcement of new customs surcharges, Wall Street suffered a sharp drop. Less than a week later, the White House reversed course and postponed the measure by three months. The result: an immediate rebound in the indices.

“Playing this game can quickly end up burning your fingers,” warns Daniel Varela. “Everyone now recognises this behavioural pattern, and its author knows perfectly well how the markets will react.”

In other words, investors are strongly tempted to bet on these reversals. But trying to anticipate a cycle of announcements and successive corrections is far from being a risk-free strategy.

Read the full article published in Tribune de Genève (french only)