Tariffs Drive Stock Market Trends as TACO Trade Emerges

In recent months, the term “tariffs” has significantly impacted the stock market. Following President Donald Trump’s tariff announcements on April 2, tariffs have become the primary topic among investors, overshadowing previous discussions around artificial intelligence.

Since then, a wave of headlines has introduced the complexities of negotiations with key trade partners like the E.U. and China. Analysts are focusing on industries and product groups that could be negatively affected by the new tariffs.

A new strategy known as the “TACO” trade is gaining traction on Wall Street. This acronym means “Trump always chickens out.” It suggests a specific trading pattern based on tariff announcements and subsequent reversals in policy.

There’s a new trade on Wall Street called the “TACO trade.” pic.twitter.com/NArOVyh9q1

— Brew Markets (@brewmarkets) May 28, 2025

Every time Trump escalates tariff talks, major indices like the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average drop. Conversely, stocks tend to rebound quickly whenever he backs off. This dynamic leads to what is essentially a “buy the dip” strategy.

Understanding the TACO Trade

The TACO trade reflects how stocks have rebounded in recent weeks as trade talks advance. Many negotiations are still ongoing, so investors should seek diversified options rather than focusing on specific sectors.

The Vanguard S&P 500 ETF (NYSEMKT: VOO) is a prime example of a diversified investment opportunity. As the largest ETF, it mirrors the S&P 500’s performance and holds over $650 billion in assets. Investing in VOO offers passive exposure to leading companies across various sectors.

Additionally, the ETF is market-cap weighted, so companies like Nvidia, Microsoft, and Apple have a larger influence on its performance.

Data by YCharts.

Historically, the S&P 500 has shown resilience during economic downturns. Stock prices typically appreciate over long time frames, making S&P 500 investments a consistently viable strategy.

Timing Your Investment

While the TACO trade advocates for time-sensitive investments based on tariff announcements, a wiser approach involves dollar-cost averaging into the Vanguard S&P 500 ETF. This method spreads out investment over time, reducing average costs and mitigating risk from short-term market fluctuations.

Is Now the Right Time to Invest?

Before investing in the Vanguard S&P 500 ETF, consider this: some analysts believe there may be better stock opportunities available right now. The Motley Fool Stock Advisor has identified ten stocks they recommend instead, potentially offering higher returns.

Historically, stocks like Netflix and Nvidia have yielded substantial returns when recommended early. Thus, investors should evaluate all options carefully.

The views presented are those of the author and do not necessarily reflect those of Nasdaq, Inc.