Trump Tariff U-Turn Sparks Global Rally, Reviving TACO Trade - SPY, DXY

U.S. President Donald Trump's reversal on proposed tariffs against European allies triggered a global market rally on Jan. 22, reigniting the "TACO trade" as investors recalibrated expectations for his trade policy. After threatening 10% tariffs—rising to 25% by June 1—on eight European nations over Greenland, Trump cited progress in negotiations as reason to withdraw the threat during a CNBC interview at the World Economic Forum in Davos. The shift reversed earlier market turmoil: on Jan. 21, stocks, bonds, and the dollar fell amid fears of renewed trade conflict. But with Trump’s softer tone, major U.S. indices surged Jan. 22, futures pointed to further gains, and Asian and European markets followed higher. Analysts noted the pattern mirrors last year’s “TACO” (Trump Always Chickens Out) dynamic, where aggressive rhetoric failed to materialize into lasting policy. Russell Mould of AJ Bell said the market’s relief reflects familiarity with Trump’s negotiating style. Yet caution remains: gold stabilized without sharp sell-offs, and defensive sectors like healthcare and tobacco outperformed, signaling lingering uncertainty. Alan Siow of Ninety One warned that while short-term sentiment may follow TACO logic, structural shifts in policy could emerge over time. Toni Meadows of BRI Wealth Management urged caution, citing the need for details on the Greenland framework and broader White House initiatives, including credit card rate caps. Investors now await the next major announcement.