For the sake of the stock market, will Trump TACO? Wall Street is not very optimistic this time.

The United States launched a military strike against Iran, intensifying market turmoil, but Wall Street strategists are issuing warnings: this time, don’t expect Trump to back down just to save the market.

Although U.S. stocks rebounded from intraday lows on Tuesday, analysts believe the Iran war is fundamentally different from previous trade wars—once a war begins, it has its own momentum, and the White House’s control over the situation is far less than with tariff policies, which could be changed at will.

The S&P 500 fell 0.9% on Tuesday, after dropping as much as 2.5% intraday. The sharp rise in oil prices threatens to worsen U.S. inflation and casts a shadow over expectations that the Federal Reserve will resume rate cuts.

Several strategists have said that the current market decline is not enough to trigger substantial alarm in Washington. Matt Gertken, Chief Geopolitical and U.S. Political Strategist at BCA Research, noted, that only a decline sufficient to raise the risk of a “market-induced recession”—a roughly 10% to 15% drop in U.S. stocks—would exert real pressure on the White House.

The “TACO trade” logic faces a challenge

For months, whenever Trump’s policies caused market turbulence, traders gradually developed a conditioned reflex: as long as the stock market drops deep enough, Trump will back down. This strategy became known as the “TACO trade,” giving rise to a buy-the-dip mentality that has repeatedly pushed stocks to recover lost ground.

Whether it was the trade war, threats to invade Greenland, or attacks on Fed independence, investors have often bet that Trump would eventually soften positions under market pressure. In April, a large-scale market selloff did force Trump to temporarily shelve tariff plans, reinforcing this logic.

However, the Iran war breaks this framework. Bob Elliott, Chief Investment Officer at New York investment firm Unlimited, says: "It reminds people of the classic saying about war—once war begins, it has its own momentum. The ability to influence and respond to market pain may not be as smooth as during the April trade conflict, because at that time Trump had complete control over policy choices."

War risks cannot be “turned off with a button”

The joint U.S.-Israeli bombing of Iran has caused sharp turbulence in the Middle East and may trigger a new wave of inflation in the U.S. economy by pushing up oil prices. The Trump administration has said the bombing may last for weeks, but so far has given no clear explanation on what conditions would end the conflict.

On Tuesday, Trump announced the U.S. would provide insurance and naval escorts for oil tankers and other ships passing through the Strait of Hormuz, attempting to curb a potential energy crisis triggered by the conflict. But surging oil prices have already cast doubt on the Fed’s rate-cut path, and U.S. stocks were already under pressure from concerns over AI prospects, pockets of credit market stress, and slowing job growth.

Baird investment strategist Ross Mayfield warns that the risk of large-scale damage to Middle Eastern oil infrastructure could amplify the war’s impact beyond the conflict’s own duration. Keith Buchanan, portfolio manager at Globalt Investments, compares the Iran conflict to the Russia-Ukraine war—where energy prices and inflation surged, and aggressive Fed rate hikes contributed to the major stock selloff in 2022. Buchanan bluntly states that Trump “doesn’t have control of the off switch,” “there are other very powerful parties involved, and this is deeper and longer-lasting than other cases.”

Declines need to be “much deeper” to move the White House

Despite market volatility, analysts generally believe the current selloff has not reached the threshold to truly alert Washington. Gina Martin Adams, Chief Market Strategist at HB Wealth Management, says: “It needs to go much deeper before it really becomes his problem. Really much deeper.” John Briggs, Head of U.S. Rates Strategy at Natixis, believes that only “destructive increases in bond yields spreading to credit and equities” would compel Trump to seek a way out of the conflict.

Steve Sosnick, Chief Strategist at Interactive Brokers, points out that Tuesday’s market action continued the previous pattern: “As with every selloff, after the first wave of decline, dip buyers step in at reasonable support levels, and FOMO-driven traders push the initial rebound higher.”

However, strategists caution investors not to overly rely on historical experience. Mike Wilson, CIO and Chief U.S. Equity Strategist at Morgan Stanley, notes that as long as crude oil prices do not climb more than 75% year over year, stocks generally perform well during past Middle Eastern conflicts.

Risk Warning and DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice and does not consider the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. If you invest based on this, you do so at your own risk.