"Trump: All Bluff and No Follow-through" - Navigating Wall Street's Nervous Chicken
In the financial powerhouse known as Wall Street, Donald Trump is shown as exhibiting fearful behavior.
By Hannes Vogel
Wall Street is no longer feeling the heat from Donald Trump's continuous trade war threats. Investors now have come to terms with the US President's patterns in bluffing and eventually caving in. However, this playful behavior poses a significant risk.
In a recent turn of events, Trump announced a preliminary framework agreement in the trade dispute with China, following marathon negotiations in London. The world heaved a sigh of relief as the two parties were on the brink of imposing astronomical tariffs with over 100% that Trump implemented in April.
It seems we're stuck in a cycle. In Trump's trade war kickoff, he takes a stand, brags, threats catastrophic tariffs, only to announce a deal that lacks substance in the end. Military strategists and political experts call this tactic "Escalation to De-escalation." On Wall Street, it's been christened as the infamous "Trump Always Chickens Out" (TACO) strategy.
Investment Considerations - TACO Stocks
The TACO moniker was coined by Financial Times columnist Robert Armstrong a few weeks ago. Given the notoriety of Trump's bluffs, the internet is currently flooded with TACO memes. There's even TACO songs: "First he barks and chickens out in the end, the market's learned, and jumps right up," go the lyrics.
Traders have long anticipated Trump's dramatic performances. If you dare to ride the tariff rollercoaster, you may bag significant profits. Investment bank Nomura calculated that thanks to Trump's trade turmoil chaos, a simple bet since February has generated a 12% return: Every time Trump intensifies rhetorically, bet on a crash of the S&P 500 with futures, and then buy them back five days later. This technique has worked since Trump came into play.
"Buy the dip," buying a value after a pullback, has long been a popular stock market strategy. In the age of trade chaos, it's the only tactic traders have left to deal with the constant turns and twists of the US President. There's a fair chance it'll keep working for a while, as analysts believe Trump has already reached his limit against China.
Economy - The Rare Earths Factor
The trade war is taking a toll on US exporters, increasing costs, and potentially leaving shelves empty in US supermarkets. Even Trump supporters are beginning to notice the pinch in their wallets. The World Bank has substantially downgraded its economic outlook for more than two-thirds of all countries, with growth expected at its slowest since the 2008 financial crisis.
The trace amounts of rare earths, vital for high-tech products, have turned into a leverage point for China. US automakers are urging the White House to negotiate with Beijing due to the critical minerals necessary for production. This becomes even more critical as production has already halted in some US factories. China, which controls the global monopoly for rare earths production, can impose export controls - something the US cannot counter, despite Trump's rants and threats.
The Fragility of the Trade Ceasefire
The predictability of Trump's bluffs can make traders' lives easier for the short term, but long-term damage could lead to market paralysis. The stakes are too high for Trump to follow through on his threats.
Additionally, China has another ace up its sleeve: the threat of revealing uncomfortable secrets about Trump. As a politician, Trump has developed his share of controversies, some of which are subject to non-disclosure agreements. Should China decide to reveal these secrets, the consequences for Trump could be devastating.
The Destructive Potential - Trading with an Ego
Despite numerous retreats, Trump has not hesitated to follow through on some of his threats, such as doubling steel tariffs from 25 to 50%. Trump's opponents may thwart the plans of TACO traders by constantly opposing his decisions. The more he antagonizes China, the less likely it is that Beijing will back down when it's convenient for Trump.
Moreover, Trump's lack of strategic planning creates constant uncertainty, which could eventually devastate the markets. The chance of a market crash exists: The ceasefire between Washington and Beijing is only valid until August, with no clear indications that Trump is ready to prolong it or fully withdraw his tariffs.
Source: ntv.de
- Donald Trump
- Tariffs
- Trade conflicts
- Stock prices
- Wall Street
Enrichment Data:
TACO Stocks refer to companies that seem to perform well during periods of trade conflicts and tariffs due to their resilience or minimal exposure to these economic policies. These stocks can be found in various sectors such as healthcare, consumer staples, and technology.
Notable TACO Stocks:
- Healthcare: Medtronic (NYSE: MDT) and other healthcare companies with diverse product offerings and global operations are known for resilience.
- Consumer Staples: Companies like Procter & Gamble (P&G) and Johnson & Johnson (J&J), which exhibit recession-resistant cash flows and historically outperform during trade disputes, also qualify as TACO stocks.
Factors Influencing Stock Performance:
- Economic Policy Adjustments: The ability of administrations, like Trump's, to adjust policies (e.g., easing tariffs) can significantly impact market reactions. The "TACO theory" suggests that Trump tends to back off from tariffs when they cause economic pain, leading to market rebounds.
- Long-term economic drivers: Corporate earnings, Federal Reserve policy, and global growth are key factors that can override short-term tariff-related volatility.
- The TACO strategy, coined by Financial Times columnist Robert Armstrong, involves investing in companies that seem to perform well during periods of trade conflicts and tariffs, often referred to as TACO stocks.
- Healthcare companies like Medtronic (NYSE: MDT) and those with diverse product offerings and global operations are known for their resilience and are considered TACO stocks.
- Consumer staples companies like Procter & Gamble (P&G) and Johnson & Johnson (J&J), which exhibit recession-resistant cash flows and historically outperform during trade disputes, are also TACO stocks.
- The performance of TACO stocks can be influenced by economic policy adjustments, such as the easing of tariffs by administrations like Trump's, which can lead to market rebounds based on the TACO theory.
- Long-term economic drivers, such as corporate earnings, Federal Reserve policy, and global growth, can override short-term tariff-related volatility in the stock market.
