Navigating the ‘TACO’ Trade
It happened again. Sabre-rattling and rhetoric threatening to implode the world order as we know it sent stocks tumbling and safe havens rallying. But within the same week, the pressure has evaporated, and US indexes are approaching a full recovery. This phenomenon, new to modern markets, has been dubbed the TACO (Trump Always Chickens Out) trade. While inelegant, the term has stuck among traders because it captures a repeating market occurrence. It’s characterised by:
- The sudden announcement of an aggressive trade policy (often with immediate effect).
- A sudden sell-off in equities.
- A softening, rollback, delay, or abandonment of the initial policy.
- A sharp V-shaped recovery in the markets.
We’ve seen it play out multiple times across both Trump administrations, from the US-China trade war in 2018 to the still-raw Greenland saga. This market behaviour, seemingly random and beholden to the whims of one man, creates stress and uncertainty for investors looking for a clear path forward. So, what can we do in this tenuous market environment to navigate the so-called TACO trade?
Dealing with the TACO trade as a long-term stock trader
Each occurrence of the TACO trade has manifested in a different form. For now, the recent Greenland turmoil seems to have passed within a single week. Markets opened the shortened week with drastic falls in the major indexes, but the pullback began immediately the next day. For most systematic long-term traders, this drop would not have even registered on their strategies. For example, our US Trade Long Term strategy was up +11.23% YTD last Friday, then saw some significant falls on Tuesday, but now sits at +14.5% YTD. If you only looked at this strategy on a weekly frequency and did not read the news, you would not have noticed anything out of the ordinary occurring.
Conversely, prolonged examples of the TACO trade such as the early 2025 “Liberation Day” saga extend over several months and can significantly impact a long-term trader. In these cases, we rely on our market filters to run damage control, aiming to mitigate major drawdowns and re-enter during the upward recovery.
The problem is then knowing if this cycle of economic threats will be a long-running series of tariffs, posturing, and bluffs, or a short-lived “negotiation tactic”. It is impossible to know with any certainty, which is why a robust strategy with strong defence mechanisms and disciplined execution is so important.
How does the All Weather fare with the TACO trade?
Unlike most equity-based strategies, the All Weather strategies diversify across a number of asset types, providing smooth growth in the face of uncertainty. We can see this thesis play out exactly as planned here, with our holdings in gold and diversified commodities seeing major lifts, while the equity-based holdings have fallen only marginally. The holding of alternative assets such as precious metals and treasury bonds provide a natural counterbalance against equity turbulence.
The goal of an All Weather strategy is not to react to market movements or to make any sort of specific long-term predictions, but to put in place a robust structure of diversification that can weather all storms. Where equity-only strategies must decide whether to exit or endure, diversified portfolios don’t need to guess. They are built to absorb the shock.
Nobody Can See the Future
As traders, our goal is to build strategies that are robust through multiple market conditions, and not strategies that require us to accurately guess next month’s headlines or backroom political discussions. Strategies that are successful across the long-term are built on strong data, robustness, and discipline, not clairvoyance.
