Idiosyncrasy and vicissitude stamp Donald Trump as an exceptional president. Right from the time he imposed his tariff policy to the start, progress and possible end of the US war on Iran, his words have driven markets in all directions, though in a predictable manner. He has been the biggest market mover in recent times. But has there been any method to this from the markets' PoV?
The answer is yes. Let's go back to the tariffs imposed in April 2025. Game theory would have suggested that all other countries, at least the big ones, should have got together to announce similar tariffs to force some amount of backtracking. But the EU, Britain and Japan all went to the US and signed deals under which they had to open more of their markets besides promising to make more investments in the US. It was a win for the US, as the base tariff rate was 10%, up from an average of 3-4% earlier.
Other countries continued to try to work things out amid announcements of higher tariffs for dealing with Russia, among other things. Then there was backtracking as goalposts shifted. This then led to TACO - Trump Always Chickens Out. While dispensations to different countries kept changing and gave the impression of chickening out, anyone following the market would have observed a distinct pattern..
First, higher tariffs meant that stock indices went down. NYSE Composite had a low of 18,743 on April 5, 2025, and a high of 23,602 on February 12, 2026, before the US Supreme Court overruled Trump tariffs. Currencies would weaken, with dollar strengthening. But when the chickening out took place, there would be a reversal of fortunes. Hence, the derivative trader had a blast.
If one believed that higher tariffs would be followed by lower tariffs, then it made sense to buy during the falling phase and sell later at a higher price, that is, going long. This worked well in both stocks and currencies.
Now, in the case of the US-Israel vs Iran war, while March was a phase of tough talk, end of the war has been spoken of by Trump many times before a deal between Washington and Tehran was signed this week. Every announcement that the war is almost over raises stock prices, while any continuation leads to a fall.
Just before the war began on February 28, NYSE Composite was at 23,524. By March 30, it had touched a low of 21,506. Now it is at 23,470. Thus, this yo-yo movement means traders could keep buying as indices fell, knowing well that talk of the end of the war, or even a ceasefire, would lead to prices rising.
The dollar, too, gained. Just before the war, the dollar index was at 97.56, signifying a weak dollar. By March 30, when the US was on top, the index had crossed 100. It corrected subsequently, but crossed the 100-mark again when an agreement date was announced. Currency dealers have had a challenging time interpreting war gains and energy-price shocks throughout this period
Casualty in the war has been gold, which is no longer the preferred investment. During the tariff episode, it got a boost as a safe haven for investors. Silver and platinum enjoyed collateral benefits. But with the war now seemingly ending, upside for gold is limited, and highs of above $5,000 an ounce, observed in February, are no longer on the horizon. As dollar is stronger now, with the dollar ndex at 100, gold has lost its lustre.
Oil traders have been taking various bets on how prices would move. At one time, there was talk of oil reaching more than $150 a barrel. As signals were sent by Trump that the West Asian conflict was over - and that Iran's military had ceased to exist - prices came down to the $90s and remained there.
Now, with peace being restored and the Strait of Hormuz set to reopen, prices could go below the $80 mark. Traders and punters would never have bargained for this. This business has become more volatile than ever.
If one puts everything together, TACO has now been transformed, in derivative parlance, into the 'Trump put'. This gives him the right, but not the obligation, to go ahead with, or stop, the war. This outcome vindicates the view that options are risky.
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