Optimism is returning to the New York Stock Exchange, where pessimism had prevailed due to U.S. President Donald Trump's tariff policy. This change is thanks to the emerging expectation that the effective tariff rate may not be as high as previously predicted, as the so-called 'TACO' phenomenon of Trump stepping back at critical moments is repeating.
The acronym TACO, which stands for 'Trump Always Chickens Out,' has become a catchphrase as President Trump has repeatedly announced tariffs only to postpone them.
However, there remains cautious sentiment that the massive tax cuts being pushed by the Trump administration and Republicans could become a burden for the stock market if the fiscal deficit issue arises. This has been referred to as 'OBBBA' or 'One Big Beautiful Bill Act,' a large bill containing significant tax cuts and expenditure increases.
If TACO gains strength, there is a strong possibility that U.S. stocks will rise, but if the influence of OBBBA increases, adjustments should be taken into account.
On the 4th (local time), the Standard & Poor's (S&P) 500 index finished at 5,970.81 on the New York Stock Exchange (NYSE). The index exhibited an upward trend for two consecutive days after it was reported that President Trump would talk with Chinese President Xi Jinping regarding trade negotiations on the 6th. Compared to the low point in April, it rebounded by 23.5% (1,135.77 points).
Global investment banks (IBs), which had lowered their expectations after the aggressive tariff war, are recently adjusting their stock market forecasts upward again. Deutsche Bank raised its year-end forecast for the S&P 500 index from 6,150 to 6,550. They had lowered their year-end forecast from 7,000 to 6,150 due to the universal and reciprocal tariff shock from the Trump administration in April, before readjusting.
Earlier, Morgan Stanley also projected that the S&P 500 index would reach 6,500 by mid-2026. Goldman Sachs, which lowered its S&P 500 index forecast due to tariff shock, raised its forecast from 5,000 to 6,100, UBS from 5,800 to 6,000, and Yardeni Research from 6,000 to 6,500.
The key reason major investment banks forecast a rise in the U.S. stock market is TACO. President Trump had stated that he could impose a 50% tariff on the European Union, but postponed it two days later and entered a 90-day truce with China over retaliatory tariffs.
The prospect that President Trump will use high tariff rates as a bargaining chip but ultimately back down if bond rates trigger a shock gained traction. Vinkee Chada, head of strategy at Deutsche Bank, noted, "The market's expectation has strengthened that the Trump administration will likely back down further if negative impacts from tariffs emerge."
However, there are still several institutions, such as HSBC and Barclays, that have lowered their S&P 500 index forecasts without making revisions. This is because concerns about a slowdown in the U.S. economy and fiscal deficit have not subsided.
Experts analyze that the massive tax cut policy promoted by the Trump administration could heighten concerns about fiscal deficits, providing grounds for adjustments in the stock market. OBBBA has passed the U.S. House of Representatives and is now in the Senate. If it clears the Senate threshold, it could temporarily shock bond rates, potentially impacting the U.S. stock market as well.
Elon Musk, CEO of Tesla, who previously served as head of the Office of Efficiency (DOGE) in the Trump administration, even described OBBBA on his social media as "disgusting and repugnant."
UBS stated, "The expansion of the U.S. structural fiscal deficit could be a burden factor in the long term, but there is little possibility of it translating into systemic risk in the short term," adding, "Rather, if a temporary shock from a rapid rise in bond rates occurs, buying opportunities could be formed around high-quality assets."