Nomura's research shows that since early February, shorting S&P 500 Index Futures immediately upon Trump issuing trade threats and then going long five days later has yielded a substantial 12% return. In contrast, investors who simply held the benchmark index experienced a series of shocking fluctuations and gained almost no substantial profits.
When Trump once again wielded the tariff stick, Wall Street had already developed a mature profit model based on the market effects of his policies - the "TACO Trade".
Nomura strategist Charlie McElligott's research shows that since early February, every time Trump issues a trade threat, shorting S&P 500 Index Futures immediately and then going long five days later has yielded a substantial 12% return.
In contrast, investors who simply held the benchmark Index experienced a series of nerve-wracking fluctuations, gaining almost no substantial returns.
Other Wall Street Institutions have also designed similar strategies, all based on the same determination: the "escalate-relax" cycle presented by Trump's trade policy will continue, and each cycle is an excellent opportunity to harvest the panic emotions of ordinary investors.
"The Harvest Code of U.S. Stocks"? A new wave of tariff shock is coming.
This trading theory is about to face a new test. Trump, irritated by "TACO," has led to a resurgence of market uncertainty.
Just as the S&P 500 Index completed a strong rebound, Trump once again wielded the tariff weapon: According to CCTV News, on May 23 local time, President Trump stated on Social Media that he proposed imposing a 50% tariff on the EU starting June 1, and then extended the implementation deadline.
Gareth Ryan, the founder and managing director of investment firm IUR Capital, has sensed an opportunity. He indicated that the S&P 500 Index might be at the upper end of its range and has established a short position on the SPDR S&P 500 ETF Trust.
"The current pattern is that you initially see very bad tariff news, followed by a retraction or easing of those measures, and this back-and-forth will bring volatility back."
Looking back at the market performance in the first few months of this year, the 'TACO trade' has shown a repeated cycle from euphoria to panic. At the beginning of the year, the market soared on expectations that Trump would ease regulations and cut taxes upon returning to the White House, and the S&P 500 Index reached an all-time high in February.
However, the good times didn't last long. As Trump prioritized tariff issues, investor enthusiasm quickly cooled. By mid-March, after Trump announced large-scale tariffs for the first time, the S&P 500 Index fell into a technical correction, dropping more than 10% from its peak.
The subsequent storyline unfolded as Wall Street expected: Trump suspended or eased some tariff measures, leading to a stock market rebound. But this rebound was extremely brief—after Trump announced the so-called reciprocal tariffs on April 2, the benchmark index was again pushed to the brink of a bear market.
Traders who boldly bought during moments of panic reaped substantial rewards: from the levels at that time to the current levels, the cumulative increase has reached 20%.
Is market immunity forming?
Stuart Kaiser, head of U.S. stock trading strategy at Citigroup, has observed an interesting phenomenon: investor reactions to soaring volatility have fundamentally changed.
"Whenever the VIX Index spikes, what we actually see is people wanting to downplay it, rather than chase after it."
According to news from the Chase Trading Desk on May 28, Deutsche Bank also believes in its Research Reports that there is a significant structural misalignment in the current global market. Despite the ongoing threats of tariffs and other issues, market performance has been contrary to expectations: since April 2, U.S. inflation swap prices have remained unchanged, while assets in the most affected countries have performed robustly. This indicates that the market has fully adapted to the new normal of the unpredictable tariff policies.
This change has been confirmed in the latest market performance. In the face of Trump's latest tariff threats, the S&P 500 Index has remained relatively calm, only falling about 3.4% from its recent peak, far from the extent of previous volatility.
Joe Mazzola, the head of Trading and Derivatives Strategy at Charles Schwab, has also noticed changes in the options market. Current bets do not reflect extreme bullish or bearish sentiment:
"The shock effect of Trump's tariff news is now gone; you no longer see that kind of extreme volatility."
As the market begins to develop immunity to policy threats, trading strategies that rely on panic to profit will also face a reshuffling. For Wall Street, the next harvesting opportunity may require finding new trigger points.
Editor/lambor