Trump’s TACO Trade Gets Tested as War Risks Rise and Stocks Start Looking Cheap
Are we buying the panic or finally paying for it? Wall Street’s TACO (Trump Always Chickens Out) trade is getting stress-tested as markets juggle Iran war headlines, rising gas prices, and fading confidence. However, underneath the noise, a shift is emerging — US stocks are starting to look cheap again.
The great unbackstop: Markets have spent decades relying on what was once called the “Greenspan put” — the idea that central banks would intervene when conditions deteriorate to prevent major crashes. That safety net strengthened after 2008 and peaked in 2020, when policymakers effectively backstopped the system. But today’s crisis is different. Central banks cannot resolve geopolitical risks, and persistent inflation limits their ability to support growth. So instead of relying on policy, investors are betting on TACO, a far less predictable fallback.
- Axios notes Trump often pulls back when stocks fall around 5%, a threshold the S&P 500 has now crossed since its January highs.
- His Iran threat pushed oil higher and yields above 5%, before a rapid reversal brought both down even as Tehran denied any negotiations.
Prices Up, Patience Down
Deutsche Bank’s Maximilian Uleer built a “pressure index” combining Trump’s approval ratings, market performance, and inflation expectations, and it’s now running hotter than during Liberation Day, when tariffs shook markets. This time, the added strain is coming from gas prices, with the national average sitting just under $4 and staring consumers in the face at every pump. On paper, the setup looks constructive, with valuations reset and earnings growth still expected to hold up. But the window may be closing, with DataTrek’s Colas warning that “There is still time to avoid a double-digit loss in 2026,” though not for much longer.
- Through all the noise, valuations have reset, with the S&P 500’s forward P/E falling to 19.95, below its five-year average for the first time since May 2025.
- The information technology sector has seen one of its steepest valuation compressions in recent memory, with some analysts calling it a “generational buying opportunity.”
The valuation opportunity: The shift toward attractive valuations isn’t just price compression. Earnings are still expected to grow, with FactSet projecting a 17% jump in 2026, pulling names like NvidiaNVDA, AmazonAMZN, and MicrosoftMSFT into value-like territory. Evercore ISI’s Julian Emanuel notes the Nasdaq-100 hasn’t looked this cheap relative to the S&P 500 in a decade, with many quality stocks trading below their Mar. 2020 lows. For investors who can handle the swings, better entry points are starting to appear, if they can avoid getting shaken out by the next headline.