Tariffs talk, tech walks and markets bet on backpedals, not breakdowns

The market sails on, propelled by a tech juggernaut that refuses to yield to political squalls. Nvidia, the crown jewel of the AI boom, has pierced the $4 trillion mark—its stock rising like a helium-fed dirigible above the clouds of trade tension and presidential saber-rattling. And while Trump’s tariff cannon continues to swivel—from copper to pharmaceuticals to Brazil—the broader market barely flinched.

S&P 500 and Nasdaq futures gyrated around the flatline overnight, digesting yet another record summit attempt. Dow futures, too, remained anchored, suggesting that despite the barrage of fresh levies and rhetorical volleys from the White House, investors are treating tariffs more like wind chatter than a change in tide.

What’s changed? It's less the headlines and more the evolving mechanics under the hood. We’re now trading in the shadow of what the street has dubbed the TACO trade—short for Trump Always Chickens Out. Born from the market’s violent reaction to April’s “Liberation Day” tariff barrage, it’s a playbook that assumes bombast will be walked back, deadlines delayed, and policies softened when asset prices flinch.

But there’s a deeper root: the so-called Trump Put. After the April fireworks sent bond yields surging and the cost of deficit funding ballooning, it wasn’t just equities that got Trump’s attention—it was the bond market, barking loud enough to trigger a 90-day tariff pause. The message was clear: risk the funding machine, and the whole show grinds to a halt. Since then, the White House has appeared willing to backpedal when financial conditions tighten uncomfortably.

Now, however, the skies look calmer. Yields are back in check, the dollar is not threatening competitiveness, and equities are making new highs. Inflation expectations, once a hot political potato, have cooled off too—the New York Fed’s latest survey shows consumers anchoring around 3%, at the very top of the Fed’s comfort zone but no longer drifting skyward.

With macro conditions more benign and political oxygen less constrained, the market senses there’s room for the president to tolerate a bit more unpopularity before the “put” gets tested again. Tariff threats may still fly like warning flares, but traders read them more as posture than prelude.

And so, the market hums—volatility compressed, earnings on deck, and policy noise fading to background static.

Indeed, the VIX has slid to 16—well below historical norms—and CME’s cross-asset vol indices are flashing green calm across both equities and FX. The three-month realized vol on the S&P just saw its steepest single-day drop since 1987. Vol-control funds, the quiet buyers of calm seas, are already creeping back into the helm, reinforcing the virtuous circle of low vol, passive flows, and higher prices.

Even Trump’s tariff letter-writing campaign—nearly two dozen trading partners hit with new rates this week—has become background noise. His 50% levy on Brazil cracked the real but left broader markets untouched. The more explosive copper and pharma tariffs landed with more sizzle than sting.

Still, not all traders are asleep at the wheel. Some are whispering about complacency rot—the risk that markets, lulled into ignoring policy risk, could be blindsided if the Trump administration truly delivers on the sharp edges of its rhetoric. But for now, the game-theory bet is that August 1 will mark another step back, not a plunge forward.

Underneath the surface, there’s a growing dissonance between optics and outcome. Trump is pointing to record equity highs as retroactive justification for his fiscal tariff cannonades, framing the market’s ascent as validation of his economic strategy. But on the Street, few are buying that narrative. Most see Nvidia’s AI-fueled moonshot—not fiscal brinkmanship—as the real engine behind the rally.

Still, the macro hasn’t buckled. Inflation hasn’t flared the way nearly every PhD-model had forecast by now. The bond market’s spine remains unbroken, growth is holding its legs, and crucially—there are still two Fed cuts priced into the runway. It’s not all bad jube-jubes. The market may be trading through noise, but it’s doing so with a cushion, not a crutch.

In that light, tariffs and tantrums may shape the headlines, but it’s the tape that tells the truth. And so far, the tape is gliding—not grinding.

In short, we’re trading a paradox: tariffs threaten disruption, but their shadow fuels dovish pricing and boosts hard tech winners. Until proven otherwise, the market seems content to dance along that tightrope.

But beneath the calm, the tape is still alert. Because every “put” has a strike, and every tightrope has a gust limit.