TACO TRADE STILL ON
Third, the TACO trade is still on.
While President Donald Trump’s social media posts may have transformed how oil markets behave, equity markets are more forward-looking. If history is any guide, Washington will blink again and a resolution to the Iran conflict will come, although probably with many dramatic twists and turns along the way.
Indeed, during both of Trump’s terms in the White House, stocks have tended to bottom well before seismic events hit main street. During the 2020 pandemic, equities had recovered ahead of massive increases in confirmed COVID-19 cases.
Last year, the same phenomenon occurred with the Liberation Day tariffs. Investors have become conditioned to believe that Trump-induced corrections are V-shaped.
To be sure, there are plenty of sceptics arguing against what they see as complacency in asset prices. But the fact that developing nations’ equities are able to rebound alongside the S&P 500 despite the bloc’s vulnerability to energy shocks shows that there’s value in this space.
In January, I argued that emerging markets have entered a supercycle and now offer opportunities for AI enthusiasts and metals bulls alike. The Iran war may have dented the thesis, but not destroyed it.
Developing economies’ assets, considered an underdog for more than a decade, are down but not out.
