Christopher Wood, Global Head of Equity Strategy at Jefferies, has raised a fresh red flag for global equity investors. In his latest Greed & Fear note, Wood questioned the durability of the so-called “TACO trade”—a long-standing investor belief that U.S. President Donald Trump, though often aggressive in trade rhetoric, will ultimately step back from imposing tariffs. With global markets riding high on artificial intelligence (AI)-driven capital expenditure optimism, Wood warned that investors may be dangerously underestimating the macroeconomic damage tariff wars could bring.
The Logic Behind the “TACO Trade”
The “TACO trade”—short for “Trump Always Chickens Out”—is a strategy that gained traction among investors during earlier phases of Trump’s presidency. It hinges on the assumption that Trump will frequently threaten tariffs to gain leverage but ultimately refrain from enforcing them due to political or market pressures. Since May 2025, this logic has underpinned a major equity market rally, as the S&P 500 and Nasdaq have scaled record highs despite repeated threats of new trade barriers.
Wood, however, suggests this narrative may be losing credibility. The belief that Trump will always retreat before causing real damage may no longer hold water, especially as the former president signals readiness to double down on protectionist policies in his re-election campaign. In the meantime, the market has grown over-reliant on AI-driven optimism and is discounting the threat posed by trade frictions.
Markets Are Ignoring Tariff Risks
According to Wood, the most dangerous development is not necessarily Trump’s tariff threats themselves—but the market’s willful ignorance of their long-term implications. Investors, he wrote, are effectively treating tariff threats like tradable events: they sell on the threat, buy on the pullback, and assume status quo will prevail. This has created a false sense of security. “It’s only a matter of time before macro data begins to reflect the damage,” he warned.
Wood pointed to persistent trade tensions with countries like Brazil and Canada as examples of policy instability that investors have brushed off too easily. Even if these threats are eventually rolled back, the uncertainty they introduce could weigh heavily on corporate earnings, global supply chains, and consumer confidence.
Supporting this view, macro research firm TS Lombard recently echoed similar concerns, noting that the volatility introduced by these policy announcements creates “perceived but unacknowledged” fragility in global markets.
Complacency Could Backfire
A key risk, Wood noted, is that markets have become so numb to tariff rhetoric that any future implementation of aggressive trade policy may have an outsized negative impact. Ben Inker of GMO added that this market complacency could actually embolden Trump to carry through with his tariff plans—since he no longer fears triggering market meltdowns. The result: a vicious cycle where underreaction begets overreach.
The numbers are already concerning. As per The Wall Street Journal, U.S. tariff rates have reached an average of 13.4 percent—levels not seen since the 1940s. These effectively function as a tax on imports and can erode consumer purchasing power, compress margins for U.S. companies, and spark retaliatory moves from trade partners.
Combined with historically high equity valuations and the dominance of passive investing strategies, this macro exposure could leave markets particularly vulnerable to a correction if sentiment suddenly sours.
Rethinking Global Allocation
Wood’s analysis goes beyond the U.S. and touches on broader trade policy trends. Tensions with Brazil, Canada, and the EU, coupled with Trump’s penchant for invoking emergency powers, create a geopolitical backdrop that’s anything but stable. He also warned of currency volatility, particularly the potential weakening of the U.S. dollar, which has historically served as a barometer of risk sentiment.
In response, Wood recommended that investors begin recalibrating their strategies. One suggestion is to reduce reliance on U.S. equities and explore opportunities in international markets—particularly Europe, China, and select emerging economies that stand to benefit from supply chain rebalancing and reduced exposure to U.S. policy volatility.
The End of a Comfortable Narrative?
Christopher Wood’s latest commentary signals that the era of the “TACO trade” may be coming to an end. While it served as a psychological and tactical cushion for investors navigating trade uncertainty, the assumption that threats never translate into lasting damage may no longer be viable. With tariff levels rising, global policy becoming more erratic, and market valuations stretched, Wood believes the risks are now too significant to ignore.
If his warning proves accurate, the global equity landscape could be on the cusp of a reset—one where investor psychology must adjust to a world in which political shocks are not always cushioned by last-minute reversals. Instead, preparation, diversification, and a sharper focus on macro fundamentals may be the best path forward.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
