The Taco Trades are in Vogue
June 2, 2025
The Markets at a Glance
Appetite for risk cooled over the weekend as traders digested a downgrade to US credit. Nasdaq 100 futures fell nearly 1% in early trading. Additionally, over the long Memorial Day weekend, the US administration made some quick, but seemingly severe policy announcements.
- The EU was threatened with 50% tariffs
- Apple was threatened with 25% tariffs
- The tax-and-spending bill was causing serious drama in the bond market
- After a call with the European Commission president, the US administration backed down on EU tariffs
The quick and abrupt changes in tariff policies appeared to yank the capital markets in both up and down directions. Apparently the same dynamic worked for how consumers reacted to the changes in the economy.
A trade war ceasefire between the US and China on May 12 helped arrest five-straight months of declining consumer confidence. In fact, consumers' outlook on the stock market improved, recession expectations declined, and there appeared to be general optimism about the job market.
Businesses however are unable to get ahead of the tariff situation and policy flip-flops are much harder to deal with and plan around. It seems that Q1 earnings were pretty good even though there was much bracing for a bad quarter. 78% of S&P 500 companies beat EPS estimates and only 3% withdrew their forecasts for FY2025. Despite this, there was still mention of a recession in most earnings calls indicating plenty of questions about the future of the US economy.
Consequently, there was a hot new acronym sweeping through Wall Street this week: The TACO trade.
Coined by the Financial Times, TACO stands for Trump Always Chickens Out and summarizes the recent development of an "investing cycle". Markets fall every time President Trump promises to impose punishing tariffs on imports, investors make their displeasure known, the president announces he's pausing said tariffs, and the markets recover.
That's precisely what happened with the 90-day pause in April, the trade war ceasefire with China earlier this month, and the EU U-turn just this week. The S&P 500 just wrapped up its best month since November 2023 and its best May since 1990. The TACO trade has proven to be an effective method for helping the market recover this month.
Indices for the week
U.S. Indices
Dow +1.6% to 42,270. S&P 500 +1.9% to 5,912. Nasdaq +2.0% to 19,114. Russell 2000 +1.2% to 2,065. CBOE Volatility Index -16.7% to 18.57.
S&P 500 Sectors
Consumer Staples +1.8%. Utilities +1.1%. Financials +1.8%. Telecom +2.1%. Healthcare +1.8%. Industrials +1.5%. Information Technology +2.4%. Materials +0.8%. Energy -0.4%. Consumer Discretionary +1.7%. Real Estate +2.7%.
Commodities and Bonds
Crude Oil WTI -1.2% to $60.79/bbl. Gold -1.9% to $3,330.1/oz. Natural Gas +3.4% to 3.447. Ten-Year Bond Yield -0.2 bps to 4.397.
Top S&P 500 Gainers
Ulta Beauty (ULTA) +15%. Hologic (HOLX) +14%. Intuit (INTU) +13%. Warner Bros. Discovery (WBD) +11%. Lamb Weston Holdings (LW) +9%.
Top S&P 500 Losers
Regeneron Pharmaceuticals (REGN) -18%. Deckers Outdoor (DECK) -16%. Copart (CPRT) -15%. The Cooper Companies (COO) -14%. Texas Pacific Land (TPL) -13%
Some important market profiles are presented below:
Daily Recap
Monday's Recap:
Monday, May 26th, the capital markets were closed in observance of Memorial Day.
Tuesday:
Markets started the short week on a high note, celebrating positive momentum toward a deal after President Trump un-threatened the EU with higher tariffs. More than nine out of 10 S&P 500 stocks were higher.
Gold tumbled as investors continue to throw money at risk assets, while bitcoin maintained its recent gains.
While macro risks remained a threat to growth, consumer confidence numbers pointed to a rebound in sentiment, with May's consumer confidence index rising.
Notable movers to the upside:
- Box jumped 17.23% after the cloud storage company beat earnings estimates and raised its forecast for the coming quarter and full year.
- Tesla shares popped about 7% after CEO Elon Musk said he was shifting his focus away from politics and back into his companies.
- US Steel gained almost 2% on reports that its acquisition by Nippon Steel is finally happening.
- Oklo rose over 10% thanks perhaps to an apparent US administration seal of approval for nuclear energy.
- Core Weave, an AI company, was downgraded by Barclays analysts, who think its near-term upside is limited, but shares still rose 20.66%.
- Southwest, an airline, gained over 5% on reports that it is rolling out $35 baggage fees.
Notable movers to the downside:
- PDD Holdings, a Chinese e-commerce retailer, plunged substantially after reporting a hefty 47% decline in profits last quarter.
- Hertz Global plunged after it missed analyst estimates across the board and announced it will offer fewer cars for rentals this year.
- Rocket Pharmaceuticals, a biotech company, dropped 62.84% after reporting that a patient participating in a gene therapy trial died over the weekend.
Wednesday:
No trade deals materialized today, so markets spent the afternoon meandering a bit lower as all eyes turned to Nvidia, scheduled to report earnings after the markets close.
Notable movers to the upside:
- NVDA, the semiconductor giant rose more than 3% after reporting a stellar first quarter, despite the collateral damage of the ongoing trade war.
- ELF Beauty popped up almost 24% on better than expected earnings and a surprise acquisition of another popular beauty brand.
- Joby Aviation, an air taxi startup, soared almost 30% after it secured a $250 million investment from Toyota.
Notable movers to the downside:
- US chip designers sank on reports that the White House has ordered them to stop selling to clients in China. Cadence Design Systems tumbled over 10% and Synopsys lost almost 10%.
- Chevron fell 1.31% a day after the US government declared that it can no longer produce oil in Venezuela.
Thursday:
Stocks spiked on hopes that markets no longer have to worry about tariffs, though the rally faded as it became clear that the drama is far from over.
The Court of International Trade unanimously ruled that the US administration had overstepped in rolling out sweeping, aggressive tariffs. The court argued that the legal justification presented for the levies – the 1977 International Emergency Economic Powers Act – was wrongfully invoked, and gave the White House 10 days to end tariffs on most major trading partners.
As expected, the White House immediately appealed the ruling, and almost as immediately a federal appeals court granted the request. Thus tariffs will stay in place during the appeal process, allowing the White House to continue trade negotiations unimpeded until a final ruling is made. It seems that the courts may have made the imposition of tariffs more complex but left open a door for other means to be employed to keep the tariffs in place.
Last, but not least, President Trump invited the Federal Reserve Chairman, Jerome Powell, to the White House to discuss "economic developments including growth, employment and inflation". While there has been continued pressure on Powell to cut interest rates, the central bank issued a statement saying that that future of monetary policy was not discussed and stressed that the policy will depend "entirely on incoming economic information and what that means for the outlook".
Bottom line may be that further market volatility lies ahead as trade and fiscal policies emerge in the weeks and months ahead.
Notable movers to the upside:
- Costco Wholesale rose over 3% after surpassing Wall Street's earnings expectations.
- Boeing climbed substantially after the aircraft manufacturer revealed turnaround plans for the struggling company.
- C3.AI, an enterprise AI company, exploded higher thanks to a smaller-than-expected loss and strong revenue growth.
- Li Auto, a Chinese EV company issued disappointing guidance but the stock climbed up anyway due to beating first-quarter forecasts.
Notable movers to the downside:
- Salesforce posted what might have been considered a good earnings report, but it wasn't good enough for investors who sold the company stock down.
- Kohl's posted solid sales and a smaller-than-anticipated earnings loss but could not attract additional investors.
Friday:
Today's data reflected the larger trend of people being freaked out by tariffs and subsequently turning down the volume on their spending.
The Personal Consumption Expenditures Price Index and the Core PCE reflected that prices are slowing, personal consumption is down and personal savings are up.
Time to pop the champagne? Or is a tariff-induced inflation storm on the horizon?
The US accused China of violating the trade war ceasefire, while the Chinese called on the US to end discriminatory semiconductor restrictions. With reports of further possible escalation of trade sanctions, the markets sank and neither gold nor bitcoin could attract investors.
At some point the tariff uncertainty needs to be addressed and hopefully before too much damage is suffered by the economy.
Notable movers to the upside:
- Zscaler, a cybersecurity company, climbed almost 10% on strong earnings and revenue growth.
- Palantir popped more than 5% on a report that the Trump administration has asked the company to help the government compile data on US citizens, adding to Palantir's existing dealings with the government.
- Ulta Beauty, the cosmetics retailer, skyrocketed nearly 13% to hit a 52-week high after the company crushed earnings expectations and raised its forecast for the year ahead.
Notable movers to the downside:
- Nvidia slipped almost 3% as continued rhetoric between the US and China over semiconductor import restrictions reignited investor fears.
- Gap plunged over 20% after the retailer revealed that tariffs will cost between $100 and $150 million.
Considerations for the Coming Weeks
There are still a few notable earnings remaining for this season.
Tuesday: Nio, Dollar General, Crowdstrike, Signet Jewelers, and something called Ollie's Bargain Outlet.
Wednesday: Dollar Tree, Five Below, Brown-Forman, MongoDB, and Thor Industries.
Thursday: Broadcom, Lululemon Athletica, Cracker Barrel, DocuSign, Vail Resorts, Ciena, and Victoria's Secret.
Strategies to Consider
- DOCU: if bullish, consider buying a call diagonal on June 5th before the markets close:
For June 6th expiration, sell a call at the expected move AND
For July 18th expiration, buy a slightly ITM call
If DOCU drops, there will be several opportunities to reduce cost basis and give the UL a chance to recover - MTN: if neutral, consider selling a strangle on June 5th before the markets close.
For June 20th expiration, sell a strangle that leans slightly bullish and have has around a 70-75% pop
In Case You Didn't Already Know This...
One of this month's best-performing stocks is KindlyMD. This is a little-known healthcare company which flew over 200% higher on the day that it announced a merger with a bitcoin investment company.
It's not the only stock enjoying big gains simply by muttering the word "cryptocurrency". In fact, it seems like a lot of companies are jumping on the bitcoin buying wagon and turning to crypto as a new method for producing value out of thin air. A play straight out of the MicroStrategy playbook?
This trend is rapidly accelerating: At the start of April, just 89 publicly traded companies held bitcoin. Now, 114 firms hold over 800,000 bitcoins worth roughly $88 billion, according to BitcoinTreasuries.net.
Questions / Comments
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