Trump's latest tariffs U-turn is sparking a global market rally — and reviving talk of the 'TACO trade'

• Trump had threatened tariffs starting at unspecified levels on eight European countries, set to rise to 25% from June 1, before backing down following market turbulence
• The 'TACO trade' strategy emerged after Trump's April 2025 'liberation day' tariff announcement, when investors learned to anticipate presidential walk-backs after initial market shocks
• While markets rallied, some analysts noted lingering caution with gold holding gains and investors maintaining 'safety elements' in portfolios, suggesting uncertainty about lasting policy changes

Market Summary: Trump Tariff Reversal Sparks Global Rally

Key Developments

President Trump retreated from threatened tariffs on eight European countries at the World Economic Forum in Davos, Switzerland, claiming he secured "the concept of a deal" over Greenland. The announced tariffs would have escalated to 25% from June 1, 2026. This reversal sparked a significant global market rally and renewed discussion of the "TACO" trade—"Trump Always Chickens Out."

Market Impact

Wall Street's major averages jumped following the announcement on Wednesday, with stock futures indicating continued gains Thursday morning. The rally extended globally, with Asian and European equities rising when markets reopened Thursday. The S&P 500 gained 78.76 points (+1.16%) to 6,875.62.

Previously, markets experienced steep sell-offs on Tuesday when the tariff threats emerged, with stocks, bonds, and the U.S. dollar all declining as investors feared a renewed trade war.

The TACO Trade Pattern

The "TACO" concept originated in 2025 after Trump's "liberation day" tariff announcement shocked markets before he eventually backed down. Investors have grown increasingly familiar with this pattern of aggressive threats followed by retreats or delays.

Russ Mould of AJ Bell noted "a lot of similarities with the liberation day market wobble in April 2025," highlighting Trump's history of backing down after market volatility.

Investor Caution Remains

Despite the rally, some defensive positioning persists. Gold held steady rather than selling off sharply, while healthcare and tobacco stocks—typically safe-haven sectors—remained in demand, suggesting investors maintain protective portfolio elements.

Analysts note that while near-term TACO behavior continues, the rhetoric may prompt lasting changes in business and investment planning, potentially altering underlying economic behavior regardless of immediate tariff reversals.