(Yahoo! Finance) - When Trump takes aim at Wall Street, enduring the volatility is the best strategy for survival.
"Trump is not going to willfully drive the markets or the economy into the ground. At least we hope not," Tom Essaye, president and founder of Sevens Report Research, told Yahoo Finance's Opening Bid.
This uneasy optimism has become the bedrock of the 2026 trading playbook thus far, suggesting that while the administration's headlines are "chaotic," the ultimate goal remains a record-breaking S&P 500 (^GSPC).
For investors, this has solidified a strategy known as the TACO theory — an acronym for "Trump Always Chickens Out."
The acronym, coined by financial journalist Robert Armstrong, suggests that the president uses extreme threats as leverage but historically blinks, or "chickens out," when those threats begin to jeopardize the stock market or the broader economy. This pattern was famously put to the test during the "Liberation Day" tariffs in April 2025. The market massacre was triggered by a sweep of sudden policy shifts, but the pain was short-lived.
Traders who viewed the carnage as a buying opportunity were rewarded when the administration inevitably pivoted. For those with a longer time horizon, the "dip" was actually a gift.
The theory has become the defining feature of Trump's current term, Essaye argues. The administration started the year laser-focused on Venezuela and has since taken aim at credit card companies over interest rates, healthcare providers over insurance costs, and even the Federal Reserve.
Also on Trump's plate: Greenland. The president has threatened a 10% tariff on European goods, with a potential hike to 25% in June if an agreement to purchase the territory isn't reached by then.
"The sheer volume will test the TACO theory," Essaye said.
Champagne and wine could also face Trump's wrath, with a potential 200% tariff threat looming after President Emmanuel Macron turned down a US-led "Board of Peace" initiative.
It follows a familiar script: a massive, headline-grabbing number designed to stun an ally into submission. Prediction markets like Polymarket currently place the odds of these tariffs at roughly 18% by February.
Despite the noise, the underlying "four pillars" of the market rally — earnings growth, stimulus, Fed support, and the AI boom — remain largely intact. Essaye suggests that while protection is "relatively cheap" and perhaps necessary for those with no hedge, the "buy the dip" mentality shouldn't be abandoned just yet.
"One of the most important things in investing is being able to cut out the headline noise and stay focused on the big trends," Essaye said. He points to financials and healthcare as prime examples and some of the best trades to make right now, as these sectors often sell off 3% to 5% on a single social media post, only for the threatened regulations to never materialize.
Investors should focus on earnings, underlying economic growth, and the likelihood the Fed will cut rates in the first half of the year, Essaye said. Not to mention, "AI enthusiasm is alive and well," he added.
Ultimately, the TACO trade relies on the belief that the president's greatest vanity is the stock market ticker. As long as that holds true, every policy-driven dip should not be viewed as a disaster, but as a tactical entry point, per Essaye.
