Trump's Tariff Tango: Contrarian Opportunities in the TACO Trade

The "TACO trade"—a strategy built on betting that markets rebound after President Trump's tariff threats—has long been a contrarian's playground. As tariffs escalate, so does the volatility, creating opportunities to buy undervalued equities in sectors like copper, pharmaceuticals, and Canadian/Asian exports. Here's why now is the time to consider these sectors, despite the noise.

Copper: A Volatile Vein of Value

Copper prices surged to $5.8955 per pound in July amid a 50% tariff threat, but J.P. Morgan forecasts a dip to $9,100/ton in Q3. This creates a contrarian sweet spot:
- Why buy now? The tariff's delayed implementation (historically common) could trigger a rebound.
- Key plays: Short-term dips in copper ETFs like the Invesco DB Base Metals Fund (DBB) or miners like Freeport-McMoRan (FCX) could offer entry points.

The chart shows sharp swings post-tariff announcements—buy on fear, sell on greed.

Pharmaceuticals: Manufacturing a Safety Net

Pharma stocks have remained resilient despite threats of 200% tariffs, thanks to companies like Eli Lilly (LLY) and Johnson & Johnson (JNJ) investing billions in U.S. manufacturing. Yet, complacency persists:
- Undervalued gems: Stocks like Natera (NTRA) and Bruker (BRKR)—not directly tariff-affected but trading below fair value—could benefit from broader market optimism.
- Tariff timeline: A 12–18 month grace period gives firms time to adjust, reducing immediate risks.

The gap hints at underappreciated resilience.

Canadian/Asian Exports: Navigating Trade Crosscurrents

Canadian energy exports, buoyed by the Trans Mountain pipeline, face headwinds from falling oil prices but could rebound if U.S.-Asia trade tensions ease. Meanwhile, Asian exporters like Vietnam (with 20% tariffs vs. feared 46%) are undervalued:
- Canada: Look to energy infrastructure plays like Pembina Pipeline (PBA), which benefits from U.S. demand.
- Asia: South Korea's Samsung (SSNLF) or India's Tata Group (TTM) could thrive if trade deals carve out exemptions.

The data shows resilience—buy dips in sectors with tariff carve-out potential.

The TACO Trade: A History of Payoffs

Markets have rebounded sharply after 50+ tariff reversals since 2020. The July 2024 tariff pivot on Japan/South Korea saw the S&P 500 recover 3% in a week. Current complacency (e.g., muted reactions to July's copper tariff) suggests the cycle is repeating.

Contrarian Playbook for Q3

1. Buy the dip in copper ETFs/stocks when J.P. Morgan's Q3 forecast triggers a sell-off.
2. Lock in pharma undervalued stocks like NTRA or BRKR, using tariffs as a negotiation catalyst.
3. Diversify into Canadian energy and Asian exporters with tariff-exempt exposure.

Risks and Reality Checks

• TACO fatigue: Analysts warn that prolonged uncertainty could erode returns.
• Inflation risks: Tariffs may still push prices higher, squeezing margins.

But for contrarians, volatility is the friend. The TACO trade's historical success and current underpricing of tariff risks make these sectors ripe for strategic buys. As Trump's next tariff announcement looms, remember: the market's fear is your opportunity.

Invest with discipline—and a pinch of contrarian salt.