Markets are experiencing a rally based on a well-known assumption: that President Donald Trump will, once more, retreat. The Dow, S&P 500, and the Nasdaq experienced their most significant increase since May 2025, surging on Tuesday largely due to a report (and semi-confirmation) indicating that the White House is contemplating an exit from America’s involvement in the Iran war without the need to reopen the Strait of Hormuz. It is later confirmed that Trump and his administration are increasingly convinced that they cannot guarantee the reopening of the strait as a condition for declaring an end to hostilities with Iran. Such an outcome would be remarkable: The conflict appears far from resolution, and even in the event of a cessation, the enduring global economic consequences of Iran’s ongoing obstruction of this vital waterway would extend for years, rather than weeks or months. Oil operates within a global marketplace, and US crude and gas prices are likely to stay elevated as long as the Strait of Hormuz remains inaccessible – irrespective of the fervent calls for increased drilling from President Donald Trump. One might assume that this would signal negative implications for the markets. Nevertheless, the Dow experienced an increase of over 1,000 points, reflecting a rise of 2.4% on Tuesday. The S&P 500 experienced an increase of 2.8%, while the Nasdaq, having entered a correction the previous week, rose by 3.8%. The rationale: Fear of missing out stemming from a TACO, the Wall Street acronym “Trump Always Chickens Out.” Trump has repeatedly reversed course on some of his most economically significant policies and proposals, giving markets whiplash and leaving traders with significant losses if they had the wrong end of a bet.
“They are rising each morning and retiring each night, eagerly anticipating, ‘This is excellent.’ “All I got to do is be on the right end of the giant roller coaster, and everything’s going to be fine,” said Dan Alpert. In essence, even if market participants are skeptical of Trump’s statements, it may be more prudent to capitalize on potential gains by granting him the benefit of the doubt rather than incurring losses by disregarding his influence. Traders are not merely concerned about a TACO; they are actively seeking to capitalize on the circumstances. Trump has exhibited a pattern of shifting positions on various policies, encompassing tariffs, Greenland, immigration, and now Iran. It presents a considerable challenge for Wall Street traders to interpret. For numerous years, Trump has demonstrated a strikingly inconsistent approach to politics. However, it can be contended that it functions to his advantage in specific respects. He occasionally presents contrasting ideas or adopts mutually exclusive positions in rapid succession, encouraging individuals to embrace and believe whichever perspective they prefer. An illustrative case is Trump’s discourse on deportation during the 2024 campaign trail. At times, he proposed a sweeping mass deportation of nearly all undocumented immigrants, whereas at other moments, his emphasis shifted to the narrower category of migrants who have been convicted of violent offenses.
Consequently, as podcast host Joe Rogan started to distance himself from Trump in the months following his significant late 2024 endorsement, Rogan asserted that he was unaware of the extent to which Trump’s deportations would proceed. “I truly believed their focus would solely be on the criminals,” Rogan remarked – despite Trump having articulated intentions that extended well beyond that scope. Trump frequently alternates between various strategies, appearing to refine his methods in real time. During his initial term, he utilized political rallies as a means to gauge the sentiments of his base regarding specific issues. One of the most significant manifestations of this during his second term was the implementation of tariffs by Trump, which could fluctuate dramatically within hours, influenced by market reactions or the responses of other nations. It was also arguably evident in the lead-up to the Iran war. In early January, Trump indicated that the United States might intervene on behalf of protesters should the Iranian regime continue its lethal actions against them. However, in light of the ongoing violence, he chose not to promptly act on his established red line. It would be nearly two months before Trump would enter Iran. However, the declared objective this time did not align with what he had indicated in early January. Regardless of the intentionality behind Trump’s shifting statements, the outcome is a president who demonstrates political flexibility yet oscillates dramatically between different approaches, creating challenges for those tasked with implementation. Few issues present greater challenges in executing his shifting desires than a conflict in the Middle East. Equities opened the day on an upward trajectory following a report indicating that Trump had communicated to his aides his willingness to consider an endgame scenario devoid of any resolution regarding the strait.
During a conference on Tuesday morning, Hegseth provided a tacit confirmation when questioned about the report. “I believe that other nations ought to heed the president’s words,” Hegseth remarked on Tuesday. “He has demonstrated that his words carry weight.” He indicates: “You may wish to begin acquiring the skills necessary to advocate for yourself.” Later Tuesday, stocks rose even higher following reports from Iranian state media that President Masoud Pezeshkian had issued a statement indicating Tehran’s readiness to end the war in exchange for security guarantees. To illustrate the volatility of the markets on Tuesday, it was not until late afternoon that Iranian news agencies reported the statement, despite earlier rumors circulating on social media. This statement ultimately reiterated the sentiments expressed by Pezeshkian over the preceding weeks. “(Today’s market move) is not justified by the news,” stated Art Hogan. “This reflects the market’s readiness to respond positively to favorable developments.” Markets may experience a reversal tomorrow. However, at this moment, traders are preparing for another TACO.