It often starts with a post, a threat, an ultimatum. It’s often just a few sentences. And yet they move billions. Monday is enough a political U-turn by Donald Trumpto completely reverse the direction of the markets. A classic “taco” moment.

The term was coined by Robert Armstrong, a columnist for the Financial Times. “Taco” stands for “Trump Always Chickens Out”in German something like “Trump always pulls his tail back”. Behind this is the observation that the president backtracks on controversial projects when the economic pressure becomes too great.

Latest “Taco” Trade: The Iran Ultimatum

The most recent episode fits this pattern perfectly. Initially the situation escalates: ultimatum to Iran, threats against energy facilities, fear of a blockade of the Strait of Hormuz. The Dax temporarily falls below 22,000 points, and the futures on the S&P 500 are also coming under pressure. Oil rises, risk aversion dominates.

Trump confirms this pattern again and again: If the stock markets fall significantly, the retirement savings accounts of many Americans come under pressure – a politically sensitive signal for the US President. Conversely, if oil prices rise sharply, dissatisfaction with expensive fuel and higher inflation grows.

In both cases, according to the “taco” logic, political hardship quickly turns into economic headwind and escalation ultimately turns into de-escalation.

An indicator from Deutsche Bank also shows how powerful this mechanism is now. Accordingly, the economic and political pressure on the US government has recently reached its highest level since the beginning of Trump’s second term in office.

Striking: Whenever this pressure increases noticeably, political signals of relaxation follow.

A pattern investors should know

The pattern is not new. The strategy got its name as early as spring 2025, when Trump frightened the markets with tough tariff threats and later verbally disarmed them. His dramaturgy is now well known:

1. Phase: maximum escalation
2. Phase: market stress (stocks down, oil up, interest rates up)
3. Phase: verbal or real relaxation
4. Phase: strong countermovement

What began as an observation is now a tried-and-tested trading approach for many investors. Since taking office, Trump’s individual statements have regularly turned the markets around: first uncertainty, then calm, then rally.

This pattern was observed several times in the Iran conflict:

Escalation in the Iran conflict, evacuation recommendations from several countries. Markets are pricing in increasing risk of war, oil is rising.

US Defense Secretary Pete Hegseth signals that the war will not last “indefinitely”. First calming down, stocks are stabilizing.

Disillusionment about the possible duration of the conflict. Shares fell significantly at the start of trading.

Trump puts high oil prices into perspective (“a very small price”) and later signals that the war is “almost” over. Oil falls, S&P 500 turns significantly positive.

Trump surprisingly postpones his Iran ultimatum by five days. Dax temporarily jumps by more than 1000 points, oil prices are falling.

Why “Taco” trades (still) work

Professional investors no longer only look at central banks, economic data or company figures. They look at Truth Social.

Anyone who thinks about this chain quickly enough can benefit: for example, by buying into falling stocks after a threat of escalation or betting on falling oil as soon as the language from the White House becomes softer.

What is important is less the individual message than trust in the pattern of exaggeration and subsequent countermovement. The “Taco” trade is less a classic fundamental analysis than a bet on political stimulus-response patterns.

The DAX jump on Monday showed how extreme these movements can be. Over 1000 points within a short period of time are unusual, even in volatile phases.

Turning point for the “Taco” trade

But this is exactly where the problem begins. The more investors play the pattern at the same time, the faster and tighter the movements become – and the more expensive misinterpretations become.

At the same time, economic pressure is increasing: higher interest rates, rising inflation expectations and volatile markets are increasing the costs of political escalation. For a heavily indebted country like the USA, this quickly becomes a burden – and this is exactly what the “taco” mechanism is based on.

However, it remains to be seen whether this will continue. Not every escalation can be reversed politically; geopolitical conflicts in particular are beyond direct control.

A clear question is therefore crucial: Is economic pressure – for example through interest rates and energy prices – enough to persuade Trump to give in? This depends on whether setbacks remain buying opportunities or whether the “taco” trade reaches its limits.