Wall Street Anticipates TACO as Iran Conflict Escalates

Mar 31, 2026, 2:20 AM

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Analysts on Wall Street are closely monitoring the resurgence of the "TACO" playbook, a term that stands for "Trump Always Chickens Out." This phrase encapsulates President Trump's tendency to backtrack on policies that could disturb market stability. Recent events surrounding the Iran conflict have prompted renewed attention to this strategy, especially as Trump has opted to pause military action against Iran to enable negotiations aimed at reopening the crucial Strait of Hormuz, a vital oil passageway.

Daniela Hathorn, a senior market analyst at Capital.com, noted that the current situation aligns with a classic "TACO" dynamic, where Trump signals potential escalation but ultimately steps back when confronted with adverse economic consequences. This pattern suggests that the US administration is seeking an exit strategy from the Iran conflict, although the exact path to achieve this remains uncertain.

As the conflict has escalated, Nancy Tengler, CEO of Laffer Tengler Investments, indicated that her team sensed a growing weariness within the administration regarding the adverse effects of the Iran situation on financial markets. Her firm strategically purchased S&P 500 calls, anticipating a market rebound. This strategy proved effective when Trump announced on March 23 that planned strikes on Iran's energy facilities would be postponed amidst "productive" discussions, marking a significant reversal from earlier threats made just two days prior.

Wall Street is familiar with the TACO approach, having witnessed its effects during previous turbulent episodes. For instance, when Trump introduced broad tariffs last April, financial markets reacted negatively, but they quickly rebounded once he chose to negotiate with individual countries instead. By the end of that year, the S&P 500 had surged by approximately 37%, achieving multiple all-time highs as it extended its gains into 2026.

To further analyze the TACO phenomenon, experts have developed tools such as BCA Research's "Trump Pain Point Index," which helps predict when policy changes might occur by tracking various economic indicators like short-term stock market movements, long-term treasury yields, and gas prices. Recently, this index reached a level that is two standard deviations above the average, raising questions about whether a TACO maneuver could stabilize the markets this time around.

However, the situation remains complex. Ole Hansen, head of commodity strategy at Saxo Bank, emphasized that while Trump may engage in the TACO strategy, any reversal in market sentiment will ultimately depend on Iran's willingness to engage diplomatically. As of now, there has been little indication of such willingness from Tehran, which has dismissed a US ceasefire proposal that includes the reopening of the Strait of Hormuz.

The ongoing conflict has significantly affected oil prices, with Brent crude futures rising more than 40% since the onset of hostilities. In contrast, the S&P 500 has experienced a decline of about 7%, with major indices like the Nasdaq and Dow entering correction territory, each down over 10% from their previous highs. Trump's recent statements reflect his surprise at the pace of oil price increases and the stock market's downturn, noting during a Cabinet meeting that he had expected more pronounced changes in both arenas.

Market strategists are now advising caution as they brace for potential inflation and rising interest rates stemming from elevated oil prices. Tim Urbanowicz, chief investment strategist at Innovator Capital Management, suggested that the persistence of high oil prices could lead to sustained inflation pressures, making it imperative for investors to tread carefully in the current environment.

As Wall Street navigates these turbulent waters, the effectiveness of the TACO strategy in calming fears and stabilizing markets remains to be seen. The intricate interplay of geopolitical events and economic indicators will continue to shape investor sentiment in the coming weeks.

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