Timing Analysis of Trump's TACO: Market Pressure May Prompt Policy Reversal

Overview

This report, published by Nomura Research, introduces the 'TACO' indicator (Trump Always Chickens Out) to track market signals preceding Trump policy reversals. It reviews three key TACO episodes since 2025 and identifies three core market metrics—U.S. equities, U.S. Treasury yields, and energy prices—to gauge market stress. As of May 7, 2026, the TACO indicator stands at 1.7 standard deviations, below the historical threshold (~3.0 standard deviations) that typically triggers policy retreats, suggesting policy risks remain in the near term, though market pressure has not yet reached levels compelling Trump to reverse course.

Core views

The report argues that Trump tends to soften his hardline policy stances when confronted with severe market turbulence—a phenomenon dubbed 'TACO.' Through retrospective analysis of three major TACO events: First, during the April 2025 'Liberation Day' tariff announcement, the S&P 500 Z-score hit 3.2 standard deviations before Trump granted a 90-day tariff exemption, prompting a swift market rebound; second, in October 2025, after imposing 100% tariffs on Chinese goods, the equity Z-score rose to 3.1 standard deviations, leading Trump to issue conciliatory remarks via social media within a week; third, in March 2026, amid statements on Iran, energy prices became the dominant variable, with the Z-score peaking at 3.9 standard deviations, after which Trump pledged troop withdrawal within two weeks. Currently, market stress has eased to 1.7 standard deviations but remains within a zone of potential risk. The report suggests that if Middle East tensions escalate further, driving another spike in energy prices, Trump may once again resort to a 'TACO' move.

Analysis framework

The study employs a systematic methodology to construct the TACO indicator framework, identifying potential inflection points by analyzing market behavior prior to Trump’s policy shifts. Specifically, it selects U.S. equities (S&P 500), U.S. Treasury yields (10-year), and energy prices (Brent crude and U.S. gasoline futures) as core metrics, calculating their rolling Z-scores to measure market stress. Historical TACO episodes confirm that Z-scores at or above 3.0 correlate strongly with Trump’s tendency to adjust policy. Applying this framework to current conditions reveals relatively mild stress levels, though continuous monitoring—particularly of energy prices and market sentiment—is warranted.

Methodology notes

• Macroeconomic frameworkCredit/debt cycle

  Credit/Debt Cycle

  This framework analyzes how market stress influences political decision-making, particularly how interactions between market sentiment and credit conditions directly affect Trump’s policy choices during potential reversals.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  When assessing energy price impacts on TACO dynamics, the study applies a supply-demand framework, interpreting energy price volatility as a reflection of market imbalances that subsequently influence Trump’s policy decisions.

• Cycle and Sentiment FrameworkTurning Point Analysis

  Turning Point Analysis

  By tracking changes in Z-scores of market indicators, the study identifies turning points in market sentiment to forecast the timing of Trump’s policy reversals, underscoring the critical role of market stress in driving policy adjustments.

Key data

• Current TACO Indicator Value1.7 standard deviationsBelow historical alert level (~3.0 standard deviations)
• Highest Z-score in Historical TACO EventsUp to 5.0 standard deviationsObserved during the March 2026 Iran policy episode
• Peak Market Stress Z-score3.9 standard deviationsOccurred during the March 2026 Iran policy episode

Impact & implications

Although current market stress has subsided, renewed escalation in Middle East tensions—potentially driving another surge in energy prices—could reignite market turmoil and prompt Trump to enact another 'TACO' maneuver to stabilize conditions. Investors should closely monitor energy price trends, market sentiment indicators, and geopolitical risks to assess the likelihood of a Trump policy reversal. Moreover, the report highlights the TACO indicator’s value as a novel analytical tool in macroeconomic and policy forecasting, offering market participants a fresh lens to anticipate Trump’s policy trajectory.

Risks

• Escalating geopolitical risks could further push up energy prices
• A reversal in market sentiment might cause the TACO indicator to peak earlier than expected
• Trump’s policy behavior is inherently unpredictable and may deviate from historical patterns

What to watch

• Developments in the Middle East and their impact on energy prices
• Short-term fluctuations in U.S. equities and Treasury yields
• Dynamic trends in the TACO indicator