The and the have recently reached new record highs at a time when many investors would normally expect the opposite. A war in the Middle East, renewed geopolitical tensions, and a major supply shock would traditionally be seen as reasons for caution and risk aversion, leading to a decline in equity markets.
So how did the stock market manage to surge to new levels in the midst of global uncertainty?There are several forces driving this rally, from growing optimism that a deal could be reached and the war may de-escalate, to the continued strength of the AI boom. But there may be another, less obvious force influencing market behavior. And it comes from a mix of two factors:
Fear of Missing Out (FOMO): the anxiety investors feel when markets rise without them, and the emotional impulse to jump in the market due to fear of missing out on potential profits.
The TACO Trade: a term used to describe Donald Trump’s tendency to make aggressive threats that initially hurt markets, and later soften, delay, or reverse those threats, leading to recoveries.
To understand this, we need to take a trip back in time to April 2025. When Trump announced reciprocal tariffs, markets sold off sharply. Major U.S. Indices fell nearly 20% after months of tariff tension, creating fear of recession across global markets.
However, investors who panic sold during that decline missed one of the strongest rebounds in recent years. Since then, markets have repeatedly experienced headline-driven volatility. But many of those declines were followed by recoveries once tensions eased or rhetoric softened, often thanks to Trump’s comments.
Over time, investors became more adaptive. Instead of reacting emotionally to every shock, they started asking a different question: Should I buy this dip before the rebound happens again?
And now markets face a new shock. War in the Middle East, rising oil risk, supply concerns, and geopolitical uncertainty. While the oil shock and tariff shock differ in may ways, they share one important common factor: Trump’s influence on market sentiment and expectations.
Many investors who missed last year’s rally didn’t want to repeat the same mistake and miss another one. Instead of waiting for clarity, they seem to have stepped in early and bought the dip. That may help explain why the latest correction only reached around 10%, half as deep as the tariff-driven selloff.
So, we may be witnessing a new market phenomenon: “Fear of Missing TACO.” And it could remain a real force in markets for the next two and a half years.
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