TACO Again? Markets Rebound, But Risks Still Loom

Trump has backed down yet again. After threatening on Saturday to strike Iran’s energy infrastructure, he swiftly reversed course on Monday, saying he was giving Iran a five-day reprieve from his threatened action. He pointed to new talks with Tehran that he believed could broker a deal to resolve the conflict. However, Iranian officials denied that any negotiations with the United States were taking place.

Although there is no definitive conclusion on whether talks are happening, market risk appetite has clearly rebounded. Oil prices plunged, precious metals nearly fully recovered their sharp intraday losses from Monday, and global equities surged.

However, the ceasefire proved short-lived, and conflict quickly reignited. Israel launched new strikes on Tehran even as Trump paused attacks on Iran’s energy sector. The Israeli Defense Forces (IDF) stated that it would continue operations in line with Israeli government directives until instructed otherwise.

The IDF told The Guardian that energy infrastructure would be spared, suggesting Israel may follow Washington in suspending any targeting of Iranian power plants and related facilities.

While the United States has temporarily paused escalation, it is simultaneously increasing military deployments. Senior Pentagon officials are considering deploying the Army’s 82nd Airborne Division’s “Immediate Response Force,” a combat brigade of around 3,000 soldiers capable of deploying paratroopers and equipment anywhere in the world within 18 hours.

As of the time of writing, global equities and precious metals have once again declined, while Brent crude has surged back above the $100 mark.

Why Did Trump Back Down Again?

According to Bloomberg, , Trump’s decision came after some allies warned that the war was rapidly becoming a disaster. Regional partners told the U.S. that permanently damaging Iranian infrastructure would almost inevitably result in a failed state after the conflict ended.

Pulling back also aligned with another key objective of the president: calming markets shaken by his threats and the ongoing conflict. The decision, announced shortly before U.S. trading began, was partly designed to address these concerns and immediately triggered a sharp drop in Brent crude, along with a rebound in the S&P 500 and U.S. Treasuries.

“Trump needed a way to step back from a threat that would almost certainly have triggered a new round of escalation—this time crossing a dangerous threshold by targeting civilian energy infrastructure, which could constitute a war crime,” said Dana Stroul, former U.S. Deputy Assistant Secretary of Defense for the Middle East.

This Time, Trump Alone Doesn’t Call the Shots

During Trump’s first year in office, the “TACO trade” became deeply ingrained in markets, with buying the dip turning into a consensus strategy. However, this time is different—Trump alone does not control the outcome. He can roll back tariffs, but he cannot unilaterally stop a war. Israel will not fully follow U.S. directives, Iran’s leadership remains firmly in control, and the Strait of Hormuz is still effectively under blockade.

At the same time, officials from several Gulf countries—who have tried to stay out of the conflict—have hardened their stance against Iran after weeks of bombardment. Saudi Arabia has reportedly told the U.S. it is prepared to strike Iran if its own power and water infrastructure are targeted by Tehran.

Brad Conger, Chief Investment Officer at Hirtle Callaghan, warned: “What concerns me is that this is no longer something Trump can fully control—not like tariffs, which can be turned on or off at will. Those encouraged by Trump’s responsiveness to markets may be placing their confidence in the wrong place.”