US "stocks, bonds and foreign exchange" rose, "TACO Tuesday" became popular

**Source: Wall Street Journal**  

**Tuesday Saw U.S. Stocks, Bonds, and Currency Rally Together, Repeating the "TACO Trade"**  

After a one-day closure for Memorial Day, U.S. stocks collectively rose in the first trading session of the week. The Dow gained 1.78%, the Nasdaq surged 2.47%, and the S&P 500 climbed 2.05%, with large-cap tech stocks leading the charge.  

U.S. Treasuries rebounded, with yields broadly declining. Long-term Treasury yields fell by at least 8 basis points, while Germany’s 30-year bond yields dropped over 6 basis points.  

The U.S. dollar index shook off its recent weakness, bouncing back more than 0.6%.  

The term "TACO" stands for "Trump Always Chickens Out," a phrase coined by *Financial Times* columnist Robert Armstrong earlier this month. He wrote:  

*"The recent rally largely stems from the market’s realization that the U.S. government has little tolerance for market and economic pain—it quickly backs down when tariffs start to hurt. This is the TACO theory: Trump Always Chickens Out."*  

The TACO trade first played out in early April when Trump announced retaliatory tariffs but then delayed them. This time, it stemmed from his flip-flopping on European trade strategy.  

### **From Threat to Compromise: A 48-Hour Reversal on 50% Tariffs**  

The market rollercoaster began last Friday when Trump abruptly announced a bombshell: starting June 1, the U.S. would impose 50% tariffs on EU goods. Frustrated by stalled trade talks, the move sent shockwaves through markets.  

The reaction was disastrous: the Dow plunged 256 points (0.6%), the S&P 500 tumbled 2.6%, and the Nasdaq slid 1%. Investors braced for a tense long weekend.  

Neil Wilson, UK investment strategist at Saxo Markets, wrote after Trump’s Friday announcement: *"Hopes and expectations remain that we’ll see the 'TACO trade' play out again."* His prediction proved spot-on.  

The plot took a dramatic turn Sunday night. Trump posted on social media that, at the request of European Commission President Ursula von der Leyen, he agreed to delay the 50% tariffs until July 9.  

*"It was my pleasure,"* Trump wrote. Von der Leyen responded that Europe was ready to move forward *"swiftly and decisively"* with negotiations.  

Once again, the market reaction confirmed the so-called "TACO trade."  

However, Justin Wolfer, an economist and professor at the University of Michigan’s Ford School of Public Policy, pointed out the chaotic effects of Trump’s ever-changing policy statements.  

*"In any previous presidency, we never saw people actively betting on whether the president would stick to his word,"* Wolfer said. *"There was no BACO trade, no CACO trade—nothing. Back then, if the president said something on Monday, you could reasonably assume he’d still believe it by Tuesday. That’s no longer the case. The real challenge is that it’s not even obvious when he’ll hold firm and when he won’t. It’s madness."*  

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