New Month, Same Pattern

By: Steve Sosnick, Chief Strategist

On Friday we noted ¹ that US indices were on pace for their best May in decades, and that became official at the close. After shaking off a -1% decline after a negative news item about widening China tariffs (our comment ²: “Cue the dip buyers?”), the late bout of window dressing and rally chasing pushed the S&P 500 (SPX) into solidly positive territory. That gave it the index’ best May performance in 35 years.

Yes, you read that correctly. SPX’ rise of +6.15% last month was the best May result since 1990’s +9.20%. The Nasdaq 100’s (NDX) +9.04% exceeded SPX’ rally, but its outperformance “only” dates to 1997’s +9.62% jump. For those of you who, for some reason, still follow the Dow Jones (INDU), that performance was by no means shabby, rising +3.94%, but it doesn’t exceed 2020’s +4.26%. Thanks to INDU being a price weighted, narrow average, that antiquated market measure’s results were unduly hampered by the stunning plunge in UnitedHealth Group (UNH).

Those results were truly exceptional and showed the market’s increasing ability to look through any negative tariff talk.

Much has been said about the so-called “TACO” trade, an acronym coined by a Financial Times columnist as shorthand for “Trump Always Chickens Out”, and while I’m usually a fan of cute market phraseology (and chicken tacos, including Taco Bell’s new Cantina version), I think it behooves investors to think of this phenomenon in nonpolitical terms. It is incredibly difficult to view political developments in an apolitical manner – particularly when they might affect you – but I’ve learned the hard way that one’s political opinions can all-too-easily cloud the objective judgments about investing that one must make. I try my best to do that here. Considering that I’ve been accused in the comment section of simultaneously loving and hating both the current and prior administrations over the years, I’d like to think that I’ve done that at least to some degree.

In that spirit, when asked to comment about the “TACO” trade to an international media publication ³, I offered that the market’s activity is a “nonpolitical way of the markets calling the administration’s bluff.” The President’s negotiating strategy clearly utilizes uncertainty, and it has also become evident that investors have taken notice of the fact that all the most stringent tariff threats have either been ameliorated, postponed, or both. Thus, bad news on the tariff front is no longer being perceived as truly threatening, and the “half-life” of each negative piece of tariff news is getting shorter by the day. We’re not yet at the point where that type of news gets completely ignored, with traders simply skipping to “buy-the-dip” even without a dip, but that seems possible.

Even without the flip to complete euphoria — where any news, good or bad, is somehow interpreted as good news – I have added a couple of steps to my recent trading rubric. Note the additions of #4, which explains today’s rally after a minor selloff caused by the 10:00 ISM report, and #5, which accounts for Friday’s rally after a breach – since confirmed – in the US-China tariff negotiations. I also adapted the step that is now #6. Rather than waiting until the afternoon, traders are beginning a little earlier. Starting the afternoon rally late in the morning, shortly after the European markets close, fits in more tightly with step #1. And of course, step #7 will prove quite incorrect one day. But when?

1. Let pesky foreigners sell overnight
2. Wake up and buy futures (optional: make coffee, brush teeth, shower)
3. Watch for 8:30 economic news
   • If positive, buy more
   • If negative, wait for dip, then buy more
4. Watch for 10:00 economic news
   • If positive, buy more
   • If negative, wait for dip, then buy more
5. If negative tariff news: wait for dip, then buy more
6. Chase rallying markets after European close at 11:30
7. Rinse, repeat 

Originally posted on Jun 2, 2025 on Traders’ Insight

PHOTO CREDIT: https://www.shutterstock.com/g/Sono+Ringo

VIA SHUTTERSTOCK

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