"TACO Trading" Dominates the Market: Investors Bet That Trump Will Eventually Back Down Under Maximum Pressure, Buying the Dip Becomes the Mainstream Strategy

BlockBeats news, on April 9, as the tensions between the US and Iran eased temporarily, Wall Street gradually formed a trading logic centered around Trump’s policy style—“TACO trades” (Trump Always Chickens Out). The market generally believes that Trump’s tough statements on geopolitics often end with compromise, so an escalation in tensions is seen as a buying signal.

Data shows that before Trump announced the suspension of military action against Iran, the market had already positioned itself in risk assets. The S&P 500 index recorded its first weekly gain in six weeks, and option market risk premiums remained low, indicating investors had limited reactions to extreme scenarios.

Institutional views suggest that the current market is repeating the cycle of “conflict escalation—sentiment under pressure—de-escalation—asset rebound.” Some analysts point out that systematic investors are in what could be one of the most profitable environments in history.

However, some voices warn that such highly consistent expectations may weaken the market’s constraint on policy. Once the market no longer has negative feedback to aggressive rhetoric, it could inversely incentivize higher-risk policy actions, increasing potential tail risks.