When "TACO" becomes "Big MAC": How Wall Street seeks a safe haven amid policy "turmoil" and the eve of the midterm elections

As the 2026 midterm elections approach, Wall Street is shifting towards a new trading theme dubbed "Big MAC"—"Big Midterms Are Coming"—in response to increasing policy uncertainty.

Recently, Trump has released a series of intensive "quasi-policy" statements via social media, aiming to give the Republican Party an edge in November's elections. These moves have shaken the market: bank stocks have plunged due to calls to cap credit card interest rates at 10%, while defense contractors have been hit by presidential demands to suspend dividends and invest in production. Meanwhile, relentless attacks by the administration on the independence of the Federal Reserve have unsettled the entire financial sector.

This policy-level "chaos" is now seen as the central risk for the market in 2026, forcing investors to reassess valuation logic in an environment of "perfect pricing." While headline indices have remained relatively stable, volatility at the individual stock and sector level has risen sharply, and institutions such as JPMorgan have issued warnings that U.S. equities may underperform in the near term due to pressure on the Fed.

With 42 weeks to go until the midterms, the unpredictability brought by "government by Twitter" is making it increasingly difficult to stick to traditional trading strategies. Market participants fear that the White House could introduce specific risks targeting other industries at any time, disrupting the current market balance.

The Emergence of the "Big MAC" Trade

Wall Street has always loved using acronyms to summarize trading logic. After the popularity of the "TACO" trade—referring to "Trump Always Chickens Out"—Ed Clissold, Chief U.S. Strategist at Ned Davis Research, has proposed the new concept of "Big MAC," meaning "Big Midterms Are Coming." Clissold believes this will be the main market theme of 2026, focusing on the policy impact before Congressional voting and its subsequent effects.

Clissold points out that Trump has focused on America’s "affordability issue," a political appeal that has directly led to actions targeting oil prices, mortgage rates, credit card rates, and federal funds rates. Such politically-driven policy interventions may have far-reaching impacts on the stock market.

For risk-aware investors, "Big MAC" is more a macro theme than a specific trading strategy. Clissold emphasizes in his report that policy actions targeting specific industries are the primary risk in the run-up to the midterms. The financial sector faces the most obvious risks, with mortgages, credit card lending, and the overall rate environment all squarely in the policy crosshairs.

Policy "Chaos" and Stock-Level Shocks

Tom Essaye, founder of Sevens Report, believes the "chaos" in government policy poses an additional risk to the 2026 market. He worries that the market’s reaction to Trump’s attempt to rewrite economic and business rules has been too muted, and this lack of response seems to be emboldening the administration. Essaye warns that while the tipping point has not been reached yet, uncertainty will ultimately strike the market.

Although most policies released via social media only cause brief ripples in the market, the sense of fear they produce is spreading among investors and strategists. Michael O’Rourke, Chief Market Strategist at JonesTrading Institutional Services LLC, notes that the sheer volume of Trump’s statements and their wide-ranging impact across Wall Street make it difficult to stick to any single trading strategy.

"You don’t want to open each day only to find that the stocks or sector you hold have become the target of the day’s attack and are down 5% or 10% at the open," O’Rourke said via telephone. He added, with 42 weeks until the election, the White House has plenty of time to introduce more industry-specific risks, which could lead to sell-offs in an overvalued market. If yet another industry is attacked by the administration, investors may leave due to excessive valuations.

The Historical Pullback Pattern of Midterm Election Years

Historical data also supports a cautious approach to midterm election years. According to CFRA Research, the average intrayear drawdown for the S&P 500 during midterm years reaches as high as 18%. CFRA’s Chief Investment Strategist Sam Stovall notes that since 1945, when one party controls both the White House and both chambers of Congress and is at risk of losing control, the market’s average annual gain is only 3.8%, with losses occurring nearly half the time.

While macro policy's impact on the S&P 500 as a whole remains relatively low by historical standards, its impact at the single-stock level is particularly pronounced. Dennis Debusschere, President and Chief Market Strategist at 22V Research LLC, points out that much of the shock from headlines is felt at the company or industry level. Influenced by political and idiosyncratic events, realized single-stock volatility exceeds its benchmark counterpart by nearly 22 points.

Wall Street Defense Strategies and the Long-term View

Facing increased political risk, some investors have turned to a more cautious outlook. JPMorgan’s trading desk says that, given the pressure on the Federal Reserve, U.S. equities may underperform in the short term. Similarly, Scotiabank strategists stated Tuesday that as legal attacks on Fed Chair Powell intensify—potentially raising the risk premium required to hold U.S. equities—global equities may once again outperform the S&P 500 in 2026.

To address this additional political risk, Kimberly Forrest, Chief Investment Officer at Bokeh Capital Partners LLC, advises investors to lengthen their investment timeframes, extending their perspectives beyond the current political cycle and looking out three to five years ahead.

Forrest revealed her firm holds shares of Exxon Mobil Corp. Although the company angered Trump last week by declaring Venezuela "uninvestable," Forrest says she is unconcerned by this short-term noise and considers the stock a long-term investment. For funds with a shorter time horizon, she candidly admits the current environment is extremely difficult and offers simple advice:

"Good luck."

Risk Warning and DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions herein suit their own particular circumstances. Investing based on the contents of this article is at your own risk.