With TACO protection, the US stock market is unafraid of storms. Will the earnings season stir up another wave?

Inflation panic, tariffs triggering a global plunge, and the geopolitical crisis in the Middle East have successively hit this year, but these crises were quickly resolved, and global stock market pricing shows that these negative shocks cannot shake the AI-driven "long-term bull market trajectory" at all. At this point, it is hard to imagine what could make the investor class feel uneasy, especially since Trump's "reciprocal tariffs 2.0" are unlikely to shake the investor community, as investors have already mastered the "TACO" strategy, and they are betting that the upcoming earnings season will show an unprecedented AI boom continuing to drive tech stocks higher, thereby pushing the stock market to new highs.

Battle-hardened Wall Street bulls are increasingly difficult to scare off by negative factors such as Trump's tariffs; these largest global bull forces are becoming unprecedentedly "resilient" to negative shocks.

The recent surge in global risk assets reaching new highs is an example: despite U.S. President Donald Trump escalating threats against major global trading partners like Japan and Brazil, including threatening to impose a 35% tariff on Canadian goods and a 50% tariff on copper, Bitcoin soared to $118,000, setting a new historical high, volatility in the U.S. Treasury market cooled, and the MSCI global stock index and S&P 500 index once again reached historical highs, with global retail investors once again making high-risk bets.

This is a form of "resilience," growing stronger after repeatedly facing significant threats—even the prospect of a new round of trade conflicts led by the Trump administration has been cast aside by bullish market forces, which have instead unified their bullish stance across various assets.

Jamie Dimon, CEO of JP Morgan, described it with another term: complacency. But for traders who have profited handsomely from bets on cryptocurrencies, large tech giants, leveraged ETFs, and commodities benefiting from tariffs, it feels more like a "victory parade."

"We fully believe that the recent rise in stocks, cryptocurrencies, and other risk assets is justified," said Max Keatner, Chief Multi-Asset Strategist at global banking giant HSBC. "Not only stocks, but almost all risk assets are rising. In fact, investors are still underweight in risk assets and are fighting against the market."

Regarding the upcoming new round of U.S. earnings season next week, investors and traders generally believe that the strong performance growth and optimistic outlook of large tech giants and leaders in the AI computing power industry will continue to drive U.S. stocks to new highs, especially the "seven giants of U.S. stocks," which hold significant weight in the S&P 500 and Nasdaq 100 indices, are expected to continue leading U.S. stocks higher under strong performance.

Continuously Rising Risk Appetite

Despite indicators signaling market pressure rising again, traders are becoming increasingly difficult to scare off. The global trade policy uncertainty index tracked by Bloomberg is on the rise, similar to the situation during the "super sell-off" wave in global financial markets in April and the months prior.

Cross-asset volatility remains low—markets remain stubbornly calm amid the latest negative trade headlines.

Recent market data shows that bullish sentiment for risk assets is high, while cross-asset volatility remains low—suggesting that risk assets are likely to continue their upward trajectory. The S&P 500 index closed just slightly below its all-time high on Friday, while the risk premium for U.S. corporate bonds hovers at its lowest level this year.

Additionally, Bitcoin exchange-traded funds (i.e., Bitcoin ETFs) continue to see net inflows. Volatility indicators have collectively weakened, with U.S. Treasury bond volatility reaching its lowest level in nearly three and a half years, serving as a gauge of stock market sentiment. Turbulence in the oil and gold markets also continues to diminish.

However, just as Trump warned this week that new and higher tariff rates would take effect on August 1 if countries could not reach an agreement, the S&P 500 index still hit a record high that day, driven by tech giants.

"The market tends to ignore any events—including tariffs and even brief conflicts in the Middle East," said Josh Kutnick, North America Multi-Asset Head at Columbia Threadneedle Investments. "If the market is not showing an overall negative reaction to these issues, I find it hard to see the market turning bearish in the short term."

Kutnick noted that when the market reacts strongly to trade policies, the U.S. government often backs down, which keeps him calm and looking for tactical opportunities to increase positions. Multiple portfolio indicators continue to flash buy signals—strong market momentum + low volatility. Although the current level of the S&P 500 index seems "high," he still believes there is room for further upside.

"TACO" Trade: The Market Bets Trump Will Eventually Back Down

Kutnick's similar bullish view with HSBC's Kettner reflects a trading strategy that is increasingly popular on Wall Street—TACO (Trump Always Chickens Out): Wall Street traders are betting that either the U.S. government will retract its tariff threats or that even if implemented, they will be far less severe than what Trump has threatened and not enough to significantly hinder U.S. economic expansion.

Regardless of the reasons, even with Trump's announcement this week of tariff rates exceeding 10% for more than a dozen countries, bullish sentiment in the market still prevails.

The term TACO was coined by a Financial Times columnist to describe Trump's flip-flopping on tariffs following his "Liberation Day" speech on April 2, but ultimately he would choose to back down, leading to a significant rebound in the stock market. When asked about "TACO" at a press conference, Trump became furious, calling the question "malicious."

The "TACO" strategy has now been widely adopted by traders and is currently the hottest trading strategy. Whenever Trump issues new, more aggressive tariff threats that trigger market sell-offs, investors bet that he will ultimately back down or that the actual policies will be significantly less severe than his verbal threats, leading them to choose to buy heavily during appropriate dips, betting that the stock market will rebound significantly soon.

Based on the "TACO" strategy, even when Trump announced tariffs of up to 50% on the EU and subsequently threatened to raise tariffs on steel, aluminum, and even copper—long relied upon imports by the U.S.—to 50% this week, the market did not experience significant downward volatility. Instead, it only underwent slight fluctuations before starting a new round of upward momentum under the buying pressure at lower levels This week, Trump praised the record-breaking and "unstoppable" performance of technology and industrial stocks, as well as the cryptocurrency frenzy, on his personal social media. Such bullish market confidence—honed in an environment that repeatedly punishes skeptics—has left some investors feeling uneasy.

"Investors are actually overconfident in the idea that 'Trump will always back down,'" said David Lebovitz, a global multi-asset strategist at JP Morgan. "The market seems to be testing the limits to see how far it can push risk before it starts to crack."

Uncertainty surrounding trade policy resurfaced this week, and JP Morgan's CEO Jamie Dimon also warned that the continuation of the bullish market hinges on the need for a preliminary framework between the U.S. and Europe to be "reached," and that the probability of an unexpected interest rate hike by the Federal Reserve is much higher than market consensus.

"It's gone too far up." Christina Hooper, chief market strategist at Manulife Investment Management, stated. She suggested reallocating to markets with more attractive valuations and greater diversification, such as Europe, the UK, and the Chinese stock market. "When stock pricing is nearly perfect, disappointment is more likely to occur."

The upcoming earnings season is expected to fuel the momentum of U.S. stocks to new highs

However, with high momentum backing, some bulls insist that hindering such a strong market trend is a mistake.

Kaitner continues to overweight U.S. stocks, stating that if the tariff blunder is reversed this week, it could actually become a catalyst for bulls; a weaker dollar and strong earnings data from tech giants will also add fuel to the upcoming earnings season for the stock market. "We strongly oppose the 'complacency theory.' In the coming weeks, stocks and other risk assets are expected to continue climbing along the wall of worry."

Mary Ann Bartels, a senior strategist at Sanctuary Wealth known as the "Wall Street prophet," recently stated that artificial intelligence (AI) will drive earnings growth and push the S&P 500 index to new historical highs. She currently predicts that by the end of 2025, the U.S. stock market will rise to 7,000 points, a 12% increase from the current level.

Bartels pointed out that the winners in the U.S. stock market will continue to be the winners. She is not concerned about the market concentration of large tech companies. Bartels wrote, "Earnings growth remains relatively scarce, primarily concentrated in technology and tech-related industries, industrials, financials, and utilities benefiting from accelerated electricity demand."

She emphasized that as major companies continue to invest billions of dollars in AI computing resources, networks, and storage infrastructure, the AI industry is still in its infancy. "The profitability and ROE of tech companies have always been the strongest, which is why capital continues to invest in these companies."

Driven by the unprecedented AI boom, tech giants like Nvidia, Microsoft, and Google have seen strong gains, leading the Nasdaq 100 index—considered the "global tech stock barometer"—to continuously set new highs, with a momentum even more vigorous than that of the S&P 500 index. According to LSEG statistics, the two sectors are expected to achieve the largest year-on-year earnings growth among the 11 sub-sectors of the S&P 500 index in the second quarter: the technology sector led by Nvidia and Microsoft is expected to grow by 17.7%, while the communication services sector is expected to grow by 31.8% The latest bull market catalyst that has driven NVIDIA's stock price to a new high and made it the first company in global financial history to reach a market value of $4 trillion is undoubtedly the commitment from NVIDIA's largest customers to increase their spending on AI computing infrastructure, demonstrating that the demand for NVIDIA's AI chips and high-performance AI server rack systems remains strong.

According to major Wall Street firms such as Morgan Stanley, Bank of America, and global asset management giant BlackRock, TSMC, ASML, and Amphenol, along with NVIDIA's performance, collectively indicate that the demand for AI computing investment is experiencing explosive growth, making it the "strongest alpha" in the stock market—despite the export restrictions imposed by the U.S. government to China and the new round of tariff battles initiated by Trump, the surge in global AI computing demand led by Amazon, Microsoft, Alibaba, and Google has not been hindered in the slightest