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Investing.com -- Over the past 48 hours, the term ‘TACO Trade’ has been widely circulated on social media and even made it to the White House.  TACO is an acronym for “Trump Always Chickens Out”, which suggests that despite his tough talk on tariffs, he will always back down in the end. 

Trump was asked about the TACO trade on Wednesday, enraging the President.  “… don’t ever say – what you said, that’s a nasty question,” Trump slapped back when asked about it.

Commenting on the TACO Trade and if the President always chickens, analysts at Sevens Report stated Wednesday, “[s]o far, yes (at least compared to his tariff threats).”  They highlight that Trump reduced the impact of tariffs by exempting USMCA goods from Mexico/Canada duties, delaying reciprocal tariffs a week after the “Liberation Day” announcement, cutting steep China tariffs weeks after implementation, and postponing a 50% EU tariff threat until July 9—the end date for other reciprocal tariff exemptions.

Has the TACO trade worked?  According to Sevens Report, “yes.”   The analysts note that the TACO trade thesis is simple: buy the Trump tariff dip. Trump’s history shows he rarely follows through on extreme tariff threats, so market sell-offs tend to reverse. The S&P 500 rose 2% after the March 4 tariffs on Canada, Mexico, and China. It’s up nearly 10% from the April 2 “Liberation Day” dip, and 11% since the April 11 announcement of 145% China tariffs. The index is now higher than before Friday’s 50% EU tariff threat. In short, buying during tariff scares has paid off.

Will the TACO trade keep working? “Probably,” according to Sevens. Tariff-related dips may be shallower now as more investors buy them, so caution is warranted. Still, history shows Trump rarely enforces extreme tariffs, they’re likely just part of a negotiation tactic: make bold threats to secure moderate outcomes. And so far, that strategy has worked.

Sevens added that TACO trade doesn’t eliminate tariff or trade war concerns. While Trump often backs off extreme threats, tariffs have still increased significantly, they highlight with 10% on all U.S. partners, 35% on China, and 25% on steel and non-USMCA goods from Canada and Mexico (10% on energy). While these aren’t as severe as first proposed, but they’re far higher than pre-Trump levels, and their economic impact remains uncertain. The TACO trade’s success doesn’t mean the risks aren’t real. So, while the TACO trade has worked and may keep working short-term, it doesn’t change the fact that tariffs are at multi-decade highs.

Regarding how investors should approach the TACO trade, they suggest a short-term strategy of buying consumer discretionary (XLY), tech (XLK), financials (XLF), industrials (XLI), and energy (XLE (NYSE:XLE)) after major Trump tariff threats. These sectors fall hardest but rebound strongest. Scale in over a day or two after the sell-off. Meanwhile, for the long term they said, “Ignore TACO.” The next 15–20% move in the market will hinge on the economy’s resilience to tariffs, policy volatility, high rates, no Fed cuts, and weaker consumer spending. Trump’s threats may shake sentiment, but unless enforced, they’re not long-term drivers. Still, with tariff burdens rising, it’s wise to stay long but reduce volatility exposure.

So, while the TACO trade received a reprieve today after a federal court struck down President Trump’s tariffs as illegal and beyond his authority, the Trump administration has stated it will appeal the ruling. Many on Wall Street expected it to be overturned.

This content was originally published on http://Investing.com