I recently posted about my puzzlement as to why the stock market indices gyrate wildly based on Trump’s utterances when we all know that he both lies and changes tack on what seems like whims. Several commenters had valuable insights and now this article from yesterday tries to explain what is going on.
Markets are rallying on a familiar bet: That President Donald Trump will, once again, back down. (It’s not called TACO Tuesday for nothing.)
The Dow, S&P 500 and the Nasdaq just had their best day since May 2025, roaring higher Tuesday in large part because of a report (and semi-confirmation) that the White House is considering an end to America’s involvement in the Iran war without reopening the Strait of Hormuz. CNN later confirmed Trump and his administration increasingly believe that they can’t promise to reopen the strait as a prerequisite to declaring an end to hostilities with Iran.
…Oil trades on a global market, and US crude and gas prices will remain high as long as the Strait of Hormuz is closed – no matter how much “drill, baby, drill” President Donald Trump proclaims.
You’d think that’d be bad news for markets.
Nevertheless, the Dow rose by more than 1,000 points, or 2.4% Tuesday. The S&P 500 was up 2.8%; and the Nasdaq, which had entered a correction last week, was 3.8% higher.
…The reason: FOMO from a TACO, the Wall Street acronym “Trump Always Chickens Out.” Trump has repeatedly reversed course on some of his most economically significant policies and proposals, giving markets whiplash and leaving traders with significant losses if they had the wrong end of a bet.
“They’re waking up every morning, going to sleep every night, rubbing their hands together, thinking, ‘This is great. All I got to do is be on the right end of the giant roller coaster, and everything’s going to be fine,’” said Dan Alpert, managing partner of Westwood Capital.
In other words: Even if markets don’t believe a word of what Trump says, it’s better to make money by giving him the benefit of the doubt than to lose money while ignoring him. Traders aren’t just worried about a TACO – they’re trying to take advantage of the situation.
…“(Today’s market move) is not justified by the news,” said Art Hogan, chief market strategist for B. Riley Financial. “This is the market telling you it was coiled up for any kind of good news.”
The article seems to be saying that if Trump says something (like the war will end soon) that looks like it would be positive news, traders will jump in to buy not because they believe him but because they think others will buy based on the news thus driving the market up. And the opposite happens when Trump says that he is going to expand the bombing, driving the market down.
I can’t say that I see this as a real ‘explanation’. It seems like an attempt to give a rationale to what is inherently irrational. This is why I do not engage in stock trading, just like I do not gamble. You will always lose to those who either have inside information or have information even slightly ahead of you. If you follow the news and make decisions based on what you think is going to affect the general economy or a particular sector, you are already too late to the game.
Well, perhaps to an extent traders may see an opportunity to make money on the naiveté of other traders, but I believe, like Mano, that this is too rational an explanation. I think that most of this is explained by traders all being fearful lemmings who complusively rush to follow what they think everyone else is doing (because, if everyone is doing it, it must be good), and also because traders *want* the war to end soon, so that the global economy will be more normal. They have a strong incentive for the market to go up, so they are acting on their wishes, which makes it go up.
You are right that “the market” is inherently irrational, Mano: it depends wholly on what rich people are feeling, and not on any rational measures. The traders are indulging in wishful thinking and following the crowd, as they always do.
Honestly, I think that one could succeed at stock trading if you just did the opposite of what “the market” is doing. They’re doing the irrational thing, so the opposite is the rational thing.
So… the value of a company isn’t, after all, its inherent capabilities and future prospects, but turns out to be the mean of the squares of an inherently volatile betting market which puts as much value on the perceived mood of an inherently volatile old man with dementia and which side of the bed he seemed to alight that morning.
I wish it weren’t true,
Off-topic.
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Artemis II:
Two hours to launch.
Just wants to make sure you do not miss it. Last time was 54 years ago.
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I watched Apollo 8 take off on Swedish Television december 1968. That mission was more ambitious, actually entering lunar orbit. This mission rather mimics the Soviet Zond missions, travelling on an ellipse behind the moon.
-And now back to the original topic!
This may be overly simplistic, but brokers make money on transactions, either buying or selling. They will use any minute reason to make a recommendation to buy or sell. They don’t care as long as they get their commission.
Oops Mano, this one overwrote your last post…
“Interesting” comments here.
but s…..
Oops, sorry!
I’ve put the original post back.