Image from the US National Archives
Investing through the first half of 2025 has been a volatile and uncertain experience. The new government’s global tariff agenda has kept markets on edge, with news of new tariffs, escalations, and occasional rollbacks arriving almost daily. While this environment may seem chaotic to most, some on Wall Street have viewed it as an opportunity. They’ve noticed a recurring pattern in the administration’s tariff efforts: aggressive implementation followed by eventual reversal. This cycle has played out several times already with Mexico, Canada, China, the UK, and the so-called Liberation Day tariffs. Each time, the initial announcement sends markets tumbling, sometimes by hundreds or even thousands of points, sparking widespread panic, only for the measures to be scaled back later.
As of June 3, 2025, several tariffs remain in effect, including a 10% universal tariff on all imports and elevated “reciprocal” tariffs ranging from 11% to 50% on goods from countries such as China, the EU, and India. Notably, the administration recently doubled tariffs on steel and aluminum imports to 50%.[1]
The reasons behind these escalations and reversals are complex and beyond the scope of this post. Instead, let’s focus on how some investors have attempted to profit from this market turbulence and whether relying on such a strategy is wise in the long run.
Last Friday, U.S. President Donald Trump was asked a question that diverged from his usual political fare. A reporter inquired about the so-called “TACO” trade, a term that has quickly gained traction in financial circles. The acronym stands for “Trump Always Chickens Out,” reflecting the pattern of aggressive tariff announcements followed by market downturns, and then subsequent policy reversals that lead to market rebounds.[2]
The strategy itself is straightforward: buy stocks on days when the market crashes, often triggered by new tariff announcements and then sell after the market recovers following a rollback, ideally locking in a profit. For example, consider this hypothetical scenario using the S&P 500 index:
📉 Hypothetical Illustration (for educational purposes only):
- On April 3, 2025, SPY closed at $505.
- Following a new round of tariff announcements, markets fell sharply.
- By April 8—after a rollback was announced, SPY rebounded to $548, an 8% gain from its low.
- However, by April 9, the index had already dropped to $523, reducing the short-term gain to just 3.5%.
*Important Disclosure: This is a simplified, hypothetical example provided for illustrative purposes only. It does not reflect actual trading results or client experiences and does not account for transaction costs, taxes, or advisory fees. Past performance is not indicative of future results.*
This kind of trading strategy relies heavily on the ability to time the market accurately and on the assumption that policy reversals will continue to follow past patterns. Neither is guaranteed. In reality, most investors find that trying to predict political decisions, or the market’s reaction to them, adds unnecessary stress and risk.
At Sidepocket, anyone can easily open an investment account that offers access to sophisticated financial strategies. We are committed to transparency, providing all the risk metrics a savvy investor would want, such as Sharpe and Sortino ratios, because hedging your investments is our ultimate goal. Rather than making bets on unpredictable political decisions, let professional quants manage your money. It’s likely to be better for both your wallet and your peace of mind.
References
1. "State of U.S. Tariffs: June 1, 2025," Yale Budget Lab, June 1, 2025. budgetlab.yale.edu
2. "The ‘Taco’ factor has spurred markets higher," Financial Times, May 16, 2025. https://www.ft.com/content/4d136adf-7e45-4ac8-937c-5151e3833e83
Disclaimer: All investing involves risk, including possible loss of principal. This article is for educational purposes only and does not constitute financial advice.