Nomura: When will Trump "TACO" Again? - FJElite
We constructed a TACO indicator to systematically identify the extent of market moves that might prompt Trump to back down from his typically aggressive policy actions/rhetoric.
Among our indicators, which include the S&P 500, 10y US Treasury yield, and energy prices, the most consistently successful was US equities. However, in the ongoing US-lran tensions, energy prices have become important.
As of 7 May, our TACO indicator has fallen to 1.7 standard deviations from relatively high levels on 5 May (+2.3sd). This follows the fall in energy prices on Pete Hegseth’s comment that the “ceasefire with Iran is not over“ (5 May) and Trump (6 May) noting “a very good chance’" of the war ending.
With Trump demonstrating sensitivity to sharp moves in key financial assets because of his aggressive policy actions/rhetoric, we constructed a TACO indicator. The objective is to systematically identify the extent of disruptive market moves that may prompt Trump to back down from his policy actions that fuelled those moves (such as lower equities, higher US yields, higher energy prices). We identified three major “TACO” instances, namely the 90-day pause on the Liberation Day reciprocal tariff (9 April 2025), backing down from imposing an additional 100% tariff on all Chinese goods (12 October 2025), and Trump’s suggestion that the US would exit Iran in two to three weeks (31 March 2026), and use those as model references to systematically gauge the potential approach of the next “TACO”.
