After Trump's Greenland Deal, Wall Street Is Talking Up the 'TACO Trade' Again. What's Next?

• The S&P 500 gained over 37% between April 2025 lows and year-end by following the 'buy-the-dip' strategy during Trump's tariff threats and subsequent reversals
• Recent market events suggest diminishing panic responses—stocks hit highs despite unprecedented actions like DOJ investigation into Fed Chair Powell and the capture of Venezuelan President Maduro
• The TACO trade faces a paradox: it relies on market panic to create buying opportunities and trigger Trump's reversals, but growing investor certainty about those reversals reduces the panic needed to make the strategy work

Market Summary: The "TACO Trade" and Trump's Greenland Reversal

Key Developments

U.S. stocks rallied Thursday after President Trump walked back threats to use force or impose tariffs to acquire Greenland, following a "framework of a future deal" between the U.S. and NATO on the territory's sovereignty. The reversal reignited Wall Street's focus on the "TACO Trade" (Trump Always Chickens Out), a strategy capitalizing on the president's pattern of retreating from aggressive policy threats.

Market Strategy and Performance

The TACO approach—essentially "buy the dip" (BTD)—has proven profitable over the past year. The S&P 500 surged more than 37% between April 2025 lows and year-end. Key examples include:

• May 12, 2025: Stocks soared after U.S.-China agreed to pause tariffs exceeding 100%
• Late May 2025: Market jumped when Trump delayed EU tariffs

Financial Times columnist Robert Armstrong coined the term, noting the administration's "low tolerance for market and economic pressure."

Evolving Market Dynamics

Investors appear increasingly desensitized to Trump's tactics. Recent events that previously would have triggered sell-offs—including the capture of Venezuelan President Nicolás Maduro and DOJ investigation into Fed Chair Jerome Powell—elicited muted reactions. The Dow Jones held steady, while both gold and stocks climbed simultaneously last Monday.

BMO Capital Markets' chief economist Douglas Porter noted in July that "the market is losing interest, or at least is much less sensitive, to new developments on the trade front."

Market Implications

While the TACO Trade faces a paradox—requiring panic that becomes less likely as investors anticipate reversals—this week's Greenland volatility demonstrates Trump can still move markets, keeping the strategy viable for the foreseeable future.