This time, "TACO" is no longer? Wall Street warns: once the war breaks out, it will be beyond Trump's control!

Caixin March 4th (Editor: Bian Chun) As U.S. stocks recovered some ground on Tuesday, traders seemed to be betting again: that President Trump will find a way to manage the consequences of yet another crisis he has triggered.

But Wall Street strategists warn against expecting the so-called “Trump put” in the Iran war situation.

The “Trump put” refers to the market expectation that Trump will step in to rescue the market during a sharp decline, creating a downward protection similar to a “put option.”

Wall Street strategists mainly focus on two reasons: First, war is different from trade wars; once started, it’s hard to hit the “pause” button. Second, the current decline in U.S. stocks is not enough to rattle Washington.

Bob Elliott, Chief Investment Officer at New York-based Unlimited Investment, said: “As the famous saying goes, once a war begins, it develops on its own momentum. It’s not as easy as during the liberation period to influence and respond to market pain. Back then, President Trump had almost complete control over policy choices.”

The U.S. and Israel’s attacks on Iran have already destabilized the Middle East and could push oil prices higher, potentially triggering a new round of inflation in the U.S. Currently, when and how this conflict will end remains unknown. It could last a long time, with unexpected consequences beyond the White House’s control.

This makes the Iran war very different from the trade war, Greenland invasion threats, or attacks on the Federal Reserve’s independence that Trump previously stirred. All these events once triggered panic among global investors. Whenever such events occur, traders expect: as long as financial markets fall too hard, Trump will back down.

This strategy is known on Wall Street as the “TACO trade” (Trump Always Chickens Out), which fosters a market mentality of “buying the dip,” thereby driving stock rebounds.

This market instinct may have tempered initial U.S. market reactions to the Iran war—U.S. stocks and bonds fell far less than overseas markets. Over the past two days, U.S. stocks opened sharply lower but gradually recovered. On Tuesday, the S&P 500 fell as much as 2.5 intraday, but closed down only 0.9%.

Steve Sosnick, Chief Strategist at Interactive Brokers, said: “Like all previous sell-offs, when buyers step in at reasonable support levels, driven by FOMO (fear of missing out), traders follow suit, further fueling the rebound.”

On Tuesday, Trump announced that the U.S. will provide insurance for oil tankers passing through the Strait of Hormuz. If necessary, the U.S. Navy will begin escorting tankers through the Strait promptly. The move aims to prevent a potential energy crisis triggered by the Iran conflict.

However, the sharp rise in oil prices is increasing U.S. inflation pressures and raising doubts about whether the Federal Reserve will restart rate cuts. In recent weeks, the U.S. stock market has been under pressure due to concerns over AI impacts, localized risks in the credit market, and slowing job growth.

Ross Mayfield, an investment strategist at Baird, said that regardless of how quickly the war ends, the risk of large-scale damage to Middle Eastern oil infrastructure could prolong the effects of the conflict.

U.S. stocks’ decline is not enough to rattle the White House

The Trump administration hinted that airstrikes could last for several weeks but did not specify conditions for ending the conflict. Analysts believe that the current market decline is not yet enough to trigger the high-level concern in Washington seen in April 2025—when markets plunged across the board, forcing Trump to pause tariffs.

Matt Gertken, Chief Geopolitical and U.S. Political Strategist at BCA Research, said that only when there is a “market-induced recession” risk—i.e., a 10-15% stock market crash—will the White House feel real pressure.

“The decline must be much larger to truly become his problem,” said Gina Martin Adams, Chief Market Strategist at HB Wealth Management. “It has to fall much deeper.”

John Briggs, Head of U.S. Rates at Natixis, also shares this view. He believes only when bond yields spike to a “disruptive level affecting credit and stock markets” will Trump be compelled to exit the conflict.

Market performance will largely depend on how the conflict affects oil prices. Morgan Stanley Chief U.S. Equity Strategist Mike Wilson noted that historically, during Middle East conflicts, stocks tend to rise as long as crude oil prices increase less than 75% year-over-year.

Lori Calvasina of RBC Capital Markets warned investors: don’t rely too much on historical precedents—buying stocks after geopolitical events trigger market declines often profits. She cautioned that evidence of stock rebounds does not always reflect the full risk of a broader war.

Keith Buchanan, Portfolio Manager at Globalt Investments, also pointed out that the risks this war poses to the U.S. are similar to those from the Russia-Ukraine conflict— which previously pushed energy prices higher, fueled inflation, and forced the Fed to raise rates, leading to a sharp decline in U.S. stocks in 2022.

More importantly, he emphasized that Trump cannot “control the pause button” of this war.

“There are other very powerful parties involved,” Buchanan said plainly. “It’s definitely more complex and prolonged than any previous crisis.”