Will TACO Work This Time?
Stocks staged a massive reversal on Monday afternoon following reports that President Trump told CBS News that the Iran War was almost “completely done” and that the U.S. might “take over” the Strait of Hormuz, which sent oil sharply lower and boosted stocks. In some ways, this headline appeared right on time, given the market decline. The peak-to-trough decline in the S&P 500 reached 5% very early on Monday, and as oil surges to multi-year highs and fears grow that the U.S./ Iran war will have a long duration, that resulted in traders starting to wonder if we will see a “TACO” repeat that could end this geopolitically driven pullback.
Well, that appeared (at least partially) Monday afternoon. As a reminder, TACO is an acronym that means “Trump Always Chickens Out,” and it was born in April/ May of last year following the administration’s backtracking on various tariff threats (Liberation Day, reciprocal tariffs, 145% China tariff threats, etc.).
During the first three instances of TACO, the declines (at the lows) in the S&P 500 were -12% in April following the reciprocal tariff announcements, -6.0% in May after the 145% China tariff threats, and -3.5% in response to 50% EU tariff threats (around Memorial Day). There were more instances of TACO later in 2025, but by that time, markets expected it, and as a result, that limited market reaction to scary headlines.
With the S&P 500 falling 5% peak to trough and threatening to go lower, it was reasonable to ask if Trump could de-escalate in response to surging oil prices and falling stock prices. And, it appears the answer again, at least initially, was “yes.” Beyond the headline, the ingredients are there for a de-escalation. The president and administration gave no clear goal for the conflict. Numerous objectives were put out there, but the lack of specificity means that Trump can simply declare “victory” and cite the immense damage done to Iranian military infrastructure and equipment and stop the assault (which is kind of what he did yesterday afternoon).
Unsurprisingly, this caused an immediate and substantial rally in stocks (the S&P 500 rose well over 2% trough to peak). However, while the rebound was welcomed, there are reasons to be more skeptical that TACO will work this time as it has in the past.
First, war is not a domestic policy that the president can simply reverse via a social media post. As we and others have said, the market only cares about oil and the movement of oil through the Strait of Hormuz. Even if the U.S. suspends attacks, there’s no guarantee that the various Iranian factions that have weapons will guarantee the safety of tankers transiting the Strait. Point being, while the U.S. ending attacks does likely increase Strait transit, it doesn’t mean it will return to pre-war levels anytime soon. That means sustainably higher oil prices will weigh on markets.
Second, if that’s the case, then a cessation of U.S. attacks does not return oil prices to the $60/$70 bbl level it was at before the war, then that begs the question if the only way to free the Strait is to totally decimate Iran’s ability to harass tankers. That, presumably, would mean escalating the conflict and/or putting troops in the country to protect the Strait or to eliminate various groups harassing tankers.
Either way, these outcomes would prevent TACO from soothing markets, and while it’d likely limit market downside, I’m not sure that it will fuel the rebound we’ve come to expect with a tweet or social media post. In the end, this pullback is all about the price of oil, and President Trump cannot control the price of global crude with policy changes. Importantly, don’t read this analysis to mean that TACO can’t work; it absolutely can. It just has to come with a ceasefire agreement from both sides, whereby the Iranians also agree to stop hostilities and, as was hinted at this past weekend, pledged not to harass tankers transiting the Strait. And that is entirely possible thanks to pressure from China.
Much of the crude “trapped” in the Persian Gulf is bound for China and Asia, and China is actively pressuring the Iranian regime to allow transit. That pressure, combined with a U.S. pledge to halt attacks, could indeed create the de-escalation that markets need to stabilize. Bottom line, the de-escalatory remark from Trump was welcomed by markets, but for yesterday’s TACO bounce to signal an end to this decline, we’ll need more than just a one-sided statement. And if that’s all we get, I’d be inclined to fade that bounce.
Stay tuned, this event has both positive and negative consequences…
Source: Sevens Report 3-11-26