Trump has said: I go on tv and the stock market goes wild — I can move it just by talking

President Trump is stacking new tariffs on top of old ones—adding another 30% on imports from Mexico and Europe over the weekend. Yet, markets remain close to their record highs, largely on the belief that Trump will eventually back down. Investors are also betting that if the tariffs drag down the U.S. economy, the Federal Reserve will step in and cut interest rates. But that assumption could prove risky if the Fed remains focused on fighting inflation rather than cushioning equity markets.

This morning, markets across Europe, Asia, and the U.S. are still hovering near all-time highs. Bitcoin briefly surged to $122,000, and while there has been some light selling activity, it hasn’t sparked concern—at least not yet.

Still, Wall Street analysts suggest this resilience defies logic. Despite Trump’s renewed tariff threats—now including a 30% hike on Mexico and the EU—investors appear confident these measures will either be watered down or delayed. But JPMorgan warns the markets could be miscalculating. If Trump follows through, and if the Fed stays on the sidelines, markets may not get the support they expect.

This has led to what Deutsche Bank calls the TACO trade—“Trump Always Chickens Out.” But that assumption is breeding serious risk.

“Markets are clearly not pricing in the possibility of these higher tariffs,” said DB’s Henry Allen in a note to clients. “We may not know the actual outcome until the last minute, which opens the door for sharp reactions and increased volatility.”

Jim Reid, also of Deutsche Bank, echoed that view: “Let’s not forget, just a month ago Trump floated a 50% tariff on the EU. So in that light, 30% might look like an improvement,” he wrote. “Still, markets tend to see this as negotiation bluster, unlikely to be enacted. But eventually, someone might call that bluff. And with U.S. risk assets near all-time highs and bond yields stable, Trump has little pressure to pull back. If these tariffs hit on August 1st, especially in thin summer markets, the impact could be significant.”