Recently, the market has once again experienced the "shock-reversal" drama. Global stock markets, which were overshadowed by policy and geopolitical risks just a few days ago, quickly rebounded the next day. Both the Hong Kong and U.S. stock markets saw upward momentum, with technology and growth sectors leading the rally. This phenomenon of quickly shifting from pessimism to optimism in a short time is vividly referred to by overseas media as “TACO Trading.”

What is "TACO Trading"

“TACO” is not a financial product, but a humorous acronym that originated from market commentary: TACO = Trump Always Chickens Out. It means “Trump always backs down in the end.”

The term was first used by investors as a humorous take on U.S. policy risk. Over the past few years, whenever Trump made statements that triggered market panic—such as threats of tariffs or policies—the market would often experience a brief drop. However, since subsequent actions typically turned out to be milder than expected, the market would quickly rebound. This “fall-then-recover” pattern was summarized as an emotional trading pattern—TACO Trading.

What Does “TACO Trading” Reflect?

The core of “TACO Trading” lies not in the policies themselves but in the turning point of market sentiment. When uncertainty rises, investors instinctively seek safety. When the risks fail to materialize as expected, sentiment recovers, prompting a return of buying activity. From panic to optimism, the market completes a “lightning reversal.” It highlights how investors rapidly switch between “expectation” and “reality,” often faster than fundamental changes.

Why Do Hong Kong and U.S. Stocks Get Affected?

Due to the increasingly interconnected global market, “TACO Trading”-style sentiment reversals often transmit across regions. For example, when U.S. investors anticipate a reduction in policy risks, they reallocate to riskier assets. International capital then flows back into emerging markets, driving the Hong Kong stock market to rise in tandem. Therefore, short-term fluctuations in both Hong Kong and U.S. stocks are sometimes not due to fundamentals, but are instead driven by global sentiment and liquidity.

How Should Investors Understand This Phenomenon?

“TACO Trading” reminds investors that market reactions are not entirely rational, and short-term fluctuations are often driven by sentiment. A quick rebound does not mean the trend has reversed; investors should still pay attention to changes in macroeconomic conditions and policy rhythms. In the face of sentiment-driven markets, rational observation, diversified portfolios, and risk control become particularly important. Understanding phenomena like “TACO Trading” helps investors see through the psychological logic behind the market, allowing them to stay calm amid volatility and avoid being swept up in market emotions.