TACO Trade & The End of a Bromance: Market Drama Unpacked

Well, we have the TACO trade and the battle of the bros—ending of the bromance—making for another exciting week. Meanwhile, the S&P 500 crossed the 6000 level for the first time since February, though not without a fair amount of volatility.

The TACO trade stands for Trump Always Chickens Out. It's a Wall Street meme referring to the pattern where Trump announces harsh tariffs that cause markets to sell off, only to later reverse, delay, or water them down,prompting a rally. This cycle has repeated itself enough to earn its own acronym.

To add fuel to the fire this week, we had the very public breakup of Elon Musk and Donald Trump—a surprise to no one, but meme worthy, nonetheless. The richest man vs. the most powerful. Threats flew, including pulling government contracts from Musk's companies and Musk accusing Trump of Epstein ties, even claiming Trump only won because of him. While the economic impact is minimal, the spectacle feeds into the broader sense of chaos and fragility.

On the data front, the U.S. economy continues to show signs of strength, supporting the stock market. However, the bond market appears more vulnerable, especially with concerns about the federal deficit if the Build Back Better (BBB) bill passes. Among its provisions: potentially making the current tax code permanent (until it inevitably changes again). There's growing controversy about the bill functioning as another wealth transfer to the top, as we discussed last week. The nonpartisan CBO estimates the added deficit could reach $3–4 trillion, which would push interest payments toward 50% of the federal budget—a dangerous trajectory.

The latest jobs and inflation numbers look positive on the surface, but a concern raised this week is whether these figures will remain reliable given staffing cuts at the Labor Department.

The yield curve remains “lumpy,” with some segments inverted and others normal. The 30-year Treasury hit 5% last week—a level not seen in a long time. Rates above 4% on Treasuries continue to offer some navigation assistance through these volatile times.

In other news, Trump has turned his focus to California, threatening to cut funding. Governor Newsom, in turn, has floated the idea of withholding federal taxes collected in California—arguing the state sends significantly more to Washington than it receives in return. While it's unclear whether that’s legally feasible, it highlights that the states benefiting most from federal funds are largely Republican led.

Hope this week is a good one for all of you. Best advice? Stay away from the news.

—Ira

For deeper insight into how tariffs and deficit concerns are shaping market sentiment, check out this recent SAS Advisors post:
Markets Brace for Uncertainty Amid Tariffs, Tax Policy, and Deficit Concerns

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