TACO makes a comeback! Trump tells the "Wall Street shorts": Lying is shameful but useful

Author: Ye Zhen

Source: Wallstreetcn

U.S. President Trump once again triggered a massive shake-up in global markets with a social media post. Although his comments about a ceasefire in the Middle East were quickly denied by the parties involved, Wall Street still chose to “buy in.”

This indicates that in the market’s view, the President’s fear of a sharp decline outweighs the credibility of his statements, and “capriciousness” has itself become a powerful tool to deter bears.

According to CCTV News, on Monday, Trump posted on social media that he was delaying the final deadline to bomb Iran’s energy facilities by five days, and claimed that both sides are engaged in “very good, productive dialogue” toward a “comprehensive and thorough resolution” of the conflict. This statement instantly reversed the market’s pessimism, leading to the most volatile trading day since the U.S.-Iran conflict erupted.

After the market opened, the S&P 500 rose as much as 2.2%, hitting its largest gain since May, and the Dow Jones Industrial Average surged over 1,000 points intraday. Meanwhile, oil prices plummeted more than 13%, with Brent crude falling below $100 per barrel, and the yield on the two-year U.S. Treasury briefly dropped sharply from its high to 3.79%.

(Brent crude falls below $100)

However, less than an hour after the tweet was posted, Iran’s official sources denied that negotiations were underway. This scene was identical to two weeks ago—when Trump claimed “the war is over,” which also caused a brief rebound in stocks and a retreat in oil prices.

This replay forced Wall Street to confront a deeper question: what exactly are the markets trading?

The answer is not peace, but Trump’s bottom line. Investors interpret this statement as a signal: the President’s extreme aversion to market declines will ultimately prevent him from carrying out the most drastic threats. Moreover, Trump’s unpredictability has become a market stabilizer: it discourages bulls from fully chasing gains and prevents bears from fully shorting.

TACO Trading Returns to the Market

At 7:05 a.m. Eastern Time on Monday, Trump posted on social media that he was extending the 48-hour deadline to strike Iran’s power facilities by five days, citing “very productive” talks that could lead to a “comprehensive and thorough resolution.”

Once the news broke, the market immediately reversed. Brent crude fell below $100 per barrel, dropping over 13%; U.S. stock futures surged; the two-year U.S. Treasury yield sharply declined by 0.22 percentage points to a low of 3.79%; European stocks and bonds also rebounded rapidly from earlier declines.

After the U.S. stock market opened, the S&P 500 rose as much as 2.2%, marking its biggest single-day gain since May; the Dow surged over 1,000 points intraday. However, as Iran explicitly denied negotiations were ongoing, the market’s gains began to fade. By the close, the S&P 500’s gains narrowed to about 1.2%, the Dow closed up about 630 points (1.4%), and the rally in the bond market also subsided.

(Performance of major U.S. stock indices that day)

This scene is familiar to Wall Street. Two weeks ago, when Trump told the media “the war is over,” stocks surged almost identically, and oil prices similarly retreated. The gains then also proved short-lived.

Media analysis suggests that Trump’s recent statements are partly aimed at calming jittery investors shaken by the war, to prevent another painful sell-off at the start of the new week. Last Friday, the S&P 500 posted its longest weekly losing streak in a year.

Knowing the statements are questionable, why did Wall Street still rally sharply?

For Wall Street, whether Trump’s words are true or not may not matter. The market’s sharp rebound was not driven by investors blindly believing in a “ceasefire,” but rather by viewing this as a guarantee: Trump’s extreme dislike of poor market data will ultimately prevent him from taking more extreme military actions.

Since the conflict erupted over three weeks ago, it has put global economies under pressure. The blockade of the Strait of Hormuz cut off critical energy supplies, driving up prices and fueling inflation. Global bond markets have lost over $2.5 trillion, facing their biggest monthly decline in over three years. Meanwhile, the yield on the two-year U.S. Treasury has risen more than half a percentage point since the outbreak, further constraining the Fed’s room to cut interest rates.

Tom Garretson of RBC Wealth Management said, “Trump has been trying to suppress oil prices, but perhaps once again, it’s the bond market that forced him to change course.”

Marko Papic, chief strategist at BCA Research, stated: “If this isn’t resolved within the next 7 to 10 days, we could face a global economic standstill. Today’s statement shows Trump realizes the real economy might be on the brink of a cliff.”

Some analysts also suggest that current trading logic resembles a Keynesian “beauty contest.”

Daniel Alpert, Managing Partner at Westwood Capital, pointed out that markets are not based on facts but on expectations of others. Even if investors suspect it’s a lie, as long as they believe others will see it as good news and buy, they will follow suit.

Moreover, FOMO (Fear of Missing Out) is also a key driver of the stock market rally.

Steve Sosnick, Chief Market Strategist at Interactive Brokers, emphasized that no one wants to miss the rebound; even a small piece of good news can trigger a strong market response. Meanwhile, traders are closely watching oil traders’ moves, as the sharp drop in oil prices provides a tangible benchmark for the stock market’s rebound.

What does Trump’s unpredictability mean for bears?

Trump’s unpredictability itself has become a distorted market stabilizer: it prevents bulls from fully chasing gains and keeps bears from fully shorting.

Michael Kantrowitz, Chief Investment Strategist at Piper Sandler, perhaps put it most accurately: “The truth depends on perception, and Trump’s capriciousness only increases uncertainty, which helps prevent overconfidence among bears who might otherwise push the market lower. All this unpredictability buys the market time and prevents overconfidence—good or bad.”

In Trump’s first year in office, the “TACO trade” became a market mantra—buying dips was the consensus. But this Iran conflict is shaking that belief—hostilities are escalating, Iran’s leadership remains in control, and the Strait of Hormuz is still blocked.

Brad Conger, Chief Investment Officer at Hirtle Callaghan, said, “My concern is that this is no longer entirely within Trump’s control, unlike tariffs that can be stopped at any time. Those who are encouraged by Trump’s responses to the market are mistaken.”

Jordan Rochester, a strategist at Mizuho Bank, pointed out that the chaos in White House messaging has left markets in a state of confusion.

“The hardest part isn’t predicting how the war will unfold, but predicting how the White House will communicate and how the market will react,” he wrote in a client report. “We are facing a confused market—uncertain whether this signals the end is near or just another ‘almost done’ show.”