"Trump Pain Index" Hits Record High, Wall Street Bets on Another TACO-Style Reversal

"Trump Always Chickens Out"—this saying refers to the president's habit of backing down whenever policies trigger significant market volatility.

According to Odaily, last week, as Trump extended the suspension of attacks on Iran's energy facilities in order to allow time for negotiations aimed at reopening the region's key oil passage—the Strait of Hormuz—this narrative surfaced once again.

Danielle Hathorn, Senior Market Analyst at Capital.com, wrote, "From a market structure perspective, this is very much like the typical 'TACO' dynamic: Trump signals escalation first, but then backs off when faced with the economic consequences," she added, "This reinforces the view that the U.S. government is actively seeking an exit path, even though the route to achieving this remains unclear at present."

Nancy Tengler, CEO of Laffer Tengler Investments, stated that her team noticed as last week began that the administration had grown weary of the market impacts stemming from the Iran conflict. On Friday, March 20, her firm purchased call options on the S&P 500 Index to prepare for a market rebound ahead of Monday.

When President Trump announced the morning of March 23 that, in light of "productive" negotiations, the planned attack on Iran's power plants would be delayed, the trade paid off. This decision was a reversal from the threats issued less than 48 hours earlier. "This president—he watches the stock market. He wants to win the midterms," Tengler said.

Wall Street Is No Stranger to the "TACO" Playbook

In April last year, after Trump unveiled a massive tariff plan, both stocks and bonds were hit. But when he paused the plan and instead entered into individual negotiations with various countries, the market rebounded. By year-end, the S&P 500 was up about 37%, hitting multiple all-time highs and carrying the rally into 2026.

The "TACO" pattern is so well-known that analysts have developed tools like BCA Research’s “Trump Pain Index” to help anticipate when policy reversals might occur. The index tracks short-term stock market volatility, long-term Treasury yields, mortgage rates, gasoline prices, inflation expectations, and the president’s approval rating.

Just in the past week, the index hit a level about two standard deviations above its historical average—a record high. This sparked a question: will this round of “TACO”-style retreat succeed in calming the market?

"He can back away as much as he wants in TACO style, but the ultimate reversal of the index will depend on Iran's involvement, and so far, there’s little sign that the other side is willing," wrote Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Market Concerns Amid Stalemate

Iran has already rejected the U.S. ceasefire plan, which calls for a full reopening of the strategically vital Strait of Hormuz. With this critical waterway remaining nearly paralyzed, the U.S. has deployed Marines and airborne troops to the area, which has continued to push oil prices higher.

Felix-Antoine Vezina-Bouriel, Chief Strategist at BCA Research, noted, “While the conflict appears to be moving towards some form of resolution, it's still too soon to aggressively bet on a drop in oil prices."

Since the outbreak of war, Brent crude futures have surged over 40%, while the S&P 500 Index has fallen about 7%. Both the Nasdaq and Dow Jones recently entered correction territory, each down more than 10% from their record highs.

“Frankly, I thought oil prices would rise more and stocks would fall further,” Trump said at last Thursday's cabinet meeting.

With oil prices breaking above $105 per barrel and the 10-year U.S. Treasury yield continuing to rise, some strategists are focused on portfolio protection against potential inflation escalation and rising rates.

“I think one has to be very cautious here,” Tim Urbanowicz, Chief Investment Strategist at Innovator Capital Management, said last week. "The longer oil prices stay elevated, the greater the chance inflation becomes sticky. So far, we haven’t seen an easy ‘exit ramp.’”