Markets are rallying on a familiar bet: That President Donald Trump will, once again, back down. (It’s not called TACO Tuesday for nothing.)
The Dow, S&P 500 and the Nasdaq just had their best day since May 2025, roaring higher Tuesday in large part because of a report (and semi-confirmation) that the White House is considering an end to America’s involvement in the Iran war without reopening the Strait of Hormuz. CNN later confirmed Trump and his administration increasingly believe that they can’t promise to reopen the strait as a prerequisite to declaring an end to hostilities with Iran.
That would be an extraordinary outcome: The war seems nowhere close to being over and, even if it were, the global economic ramifications of Iran continuing to block the critical waterway would be long-lasting – measured in years, not weeks or months.
Oil trades on a global market, and US crude and gas prices will remain high as long as the Strait of Hormuz is closed – no matter how much “drill, baby, drill” President Donald Trump proclaims.
You’d think that’d be bad news for markets.
Nevertheless, the Dow rose by more than 1,000 points, or 2.4% Tuesday. The S&P 500 was up 2.8%; and the Nasdaq, which had entered a correction last week, was 3.8% higher.
The reason: FOMO 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’re waking up every morning, going to sleep every night, rubbing their hands together, thinking, ‘This is great. 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, managing partner of Westwood Capital.
In other words: Even if markets don’t believe a word of what Trump says, it’s better to make money by giving him the benefit of the doubt than to lose money while ignoring him. Traders aren’t just worried about a TACO – they’re trying to take advantage of the situation.
Trump has changed course repeatedly on multiple policies, including tariffs, Greenland, immigration and now Iran. It’s a lot for Wall Street traders to make sense of.
For many years, Trump has proven a remarkably inconsistent politician. But it arguably works for him in certain ways.
He will sometimes float very different ideas or take different – and mutually exclusive – positions in quick succession, inviting people to hear and believe whichever one they want.
A great example is how Trump spoke about deportation on the 2024 campaign trail. Sometimes he floated a historic mass deportation of virtually all undocumented immigrants, while at other points he focused more on deporting the much more limited universe of migrants who have been convicted of violent crimes.
Thus, when podcast host Joe Rogan began to publicly break with Trump in the months after delivering him a crucial late 2024 endorsement, Rogan claimed he didn’t know how far Trump’s deportations would go.
“I really thought they were just going to go after the criminals,” Rogan said – even though Trump had spoken publicly about going much further than that.
Trump also tends to oscillate between different approaches – almost seeming to workshop new approaches in real time.
When he was holding more political rallies in his first term, he would use them to take the temperature of his base on a given issue.
One of the biggest ways this has manifested itself in his second term was Trump’s tariffs, which sometimes went up or down by large amounts in a matter of hours, depending upon the reactions of the markets or other countries.
It was also arguably on display in the runup to the Iran war. In early January, Trump suggested the United States would come to the aid of protesters if the Iranian regime kept killing them. But then, despite the killings continuing, he declined to immediately enforce his own red line.
It would be nearly two months until Trump would go into Iran. Except this time the stated purpose wasn’t even what he previewed in early January.
Regardless of how intentional Trump’s shifting statements are, the result is a president who has proven politically flexible but also swings wildly from one approach to another in ways that can be difficult for those around him to implement.
And few issues provide more difficulties in implementing his changing whims than a war in the Middle East.
Stocks started the day higher after the Wall Street Journal reported that Trump had told aides he’d accept an endgame scenario without any resolution to the strait. Hegseth, when asked about the report, gave a tacit confirmation during a press conference Tuesday morning.
“I think other countries should pay attention when the president speaks,” Hegseth said Tuesday. “He’s proven when he speaks he means something. He’s pointing out: You might want to start learning how to fight for yourself.”
Later Tuesday, stocks rose even higher after Iranian state media reported that President Masoud Pezeshkian had issued a statement that Tehran is ready to end the war, in exchange for security guarantees.
To demonstrate how fidgety markets were Tuesday, while rumors of the statement surfaced on social media, it wasn’t until late afternoon that Iranian news agencies finally reported the statement — which ultimately only echoed what Pezeshkian has been saying for weeks.
“(Today’s market move) is not justified by the news,” said Art Hogan, chief market strategist for B. Riley Financial. “This is the market telling you it was coiled up for any kind of good news.”
Markets could U-turn tomorrow. But, for now, traders are gearing up for another TACO.