Perhaps we should not have been surprised.
In what now looks like a well-worn negotiating tactic, yesterday President Trump did a complete U-turn on threats he made relating to the acquisition of Greenland. Trump said he would not use military force to invade Greenland; would not impose tariffs on European countries resisting a U.S. takeover of the Danish territory; and would accept “additional discussions” instead.
The markets breathed a big sigh of relief. S&P 500 futures were up 0.64% this morning after the index rose 1.16% yesterday, putting it back into positive territory for the year to date (up 0.44%).
Inevitably, traders piled into the “Trump TACO trade”—the notion that “Trump always chickens out.” The TACO trade (buying the dips when Trump says something scary and then enjoying the upside when he compromises) has been so reliable over the past year that some traders are worrying that the market will become complacent to Trump’s more outlandish threats.
The S&P has, in fact, performed worse under Trump 2.0 than it did under Obama, Biden, and Trump 1.0. The dollar has also declined 9% against foreign currencies over the past 12 months. Both are signals that global investors are more cautious about U.S. assets than they used to be.
