The 'TACO' trade fails: Trump's Iran extension fails to boost markets

One of the best trades of the past year is faltering. President Donald Trump extended a deadline to attack energy infrastructure in Iran until April 6. Stock futures initially got a boost as oil prices fell, with traders hoping this could mean the U.S.-Iran war will soon end. That hope proved short-lived. Stocks were under pressure Friday as Iran's foreign minister reportedly said Tehran doesn't intend to hold talks with the U.S. What's more, a Wall Street Journal report said the Pentagon was considering sending another 10,000 troops to the Middle East, threatening further escalation. Friday's market action is a troubling sign for investors who have ridden the "Trump Always Chickens Out" (TACO) trade to sky-high stock levels over the past year. In the past, Trump would back off from an initial threat — tariffs maybe, or seizing Greenland — and send the market soaring. The most recent example of this happened Monday, when he said the U.S. and Iran held productive talks last weekend. Stocks ripped higher on those comments. Now, the TACO trade appears to be failing as investors brace for a longer-than-anticipated conflict. "Trump's deferment of his Iran deadline (from 3/27 until 4/6) isn't triggering much of an equity rebound this morning as investors remain very much on edge about the entire situation," wrote Adam Crisafulli of Vital Knowledge. "The consensus view still seems to be that the war will escalate further at some point in the coming days/weeks." For weeks, investors have been fretting about the impact the war will have on the U.S. and the world economy. The Atlanta Federal Reserve's GDPNow tracker shows first-quarter growth is estimated at 2%. A month ago, that figure stood around 3.1%. Stagflation fears are also hurting economic prospects. Investors came into 2026 expecting the Fed to cut rates at least once. Now, the CME Group's FedWatch tool shows the probability of a rate hike by year-end is at 52% as inflation worries mount due to rising energy prices. The "constant flip-flopping and headline fatigue is starting to undermine the [Trump] put efficacy," wrote Barclays strategist Emmanuel Cau.