Markets are shrugging off Trump's tariffs. Experts explain why.
President Donald Trump in recent days slapped tariffs as high as 50% on dozens of countries, restoring the type of aggressive trade policy that sent stocks plummeting a few months ago. The new round of levies prompted little more than a shrug on Wall Street.
Stocks even recorded gains on Monday as investors looked past tariffs over the weekend targeting the European Union and Mexico, two top U.S. trade partners.
Trump has rolled back many of his steepest tariffs over recent months, giving rise to an investor posture known as TACO, short for Trump Always Chickens Out.
That view has largely won out among investors on Wall Street, who have come to see tariff announcements as diplomatic fodder rather than firm policy declarations, Bret Kenwell, U.S. investment analyst at eToro, told ABC News.
Investors, Kenwell added, are experiencing "headline fatigue."
"There's a realization that all of these trade headlines and policy proposals are a negotiating tactic rather than a hardline stance," Kenwell said.
As recently as April, the markets gyrated in response to Trump's tariff announcements.
When Trump unveiled sweeping "Liberation Day" tariffs on April 2, the major stock indexes lost about $3.1 trillion in value the next day, suffering their biggest one-day decline since the onset of the COVID-19 pandemic.
In all, the Dow Jones Industrial Average dropped nearly 4%, while the S&P 500 fell 4.8%. The tech-heavy Nasdaq tanked nearly 6%.
Days later, on April 9, Trump delayed a major swathe of the tariffs for 90 days, saying he would pursue trade negotiations with scores of targeted countries. The move sent the stock market to one of its largest ever single-day increases.
The Dow soared nearly 8%, while the S&P 500 climbed 9.5%. The Nasdaq increased a staggering 12%.
"Once the administration opened the door to a negotiating period, that's when markets realized there's a point where the administration was willing to back down," Kenwell said. "Once that was the case, they realized it's not going to be an endless run on trade policy.
One month later, Trump established a trade framework with China, ratcheting down tariffs on the top U.S. trade partner from 145% to 30%. That day, each of the major stock indexes climbed at least 2.8%.
When Trump doubled tariffs on steel and aluminum in early June, however, investors didn't appear to care. The major indexes were essentially unchanged.
For his part, Trump has rejected the notion that he backs down from tariffs, insisting the on-again, off-again levies make up a key part of his negotiation strategy.
When asked about the TACO moniker at the White House in May, Trump said; "I chicken out? I've never heard that."
Despite a rollback of some tariffs, levies are highly elevated relative to where they stood before Trump took office.
Taking into account recent tariff announcements – which are set to take effect on Aug. 1 – the effective tariff rate registers at 20.6%, the highest such rate since 1910, the Yale Budget Lab found.
Consumer prices rose 2.7% in June compared to a year ago, marking a notable surge of price increases as Trump's tariff policy took hold, government data on Tuesday showed.
"Call it TACO, or corporate resiliency, whatever you want. Tariffs are coming due in the form of higher inflation, thinner margins, or a combination of both. I'm still not sure people have processed this," Callie Cox, chief market strategist at Ritholtz Wealth Management, told clients on Tuesday in a memo shared with ABC News.
Key measures of the economy have proven resilient in recent months, however, defying fears of sky-high inflation and a possible economic downturn. Even after the recent uptick, inflation remains lower than the pace registered in January, the month Trump took office.
For markets to demonstrate greater concern about tariffs, Kenwell said, investors would "need to see significantly higher inflation."
"Markets find a way to shrug off bad news," Kenwell added. "It doesn't make them invincible but it does make them resilient."
Tariffs on dozens of countries stand poised to take effect on Aug. 1, making it a potential inflection point for the market view of tariffs.
Analysts at France-based financial firm BNP Paribas showed minor concern in a memo to clients shared with ABC News on Tuesday.
"The risk of an escalatory tit-for-tat scenario has risen," BNP Paribas said, before acknowledging that it expects "deals will be struck by 1 August to limit the further increase in tariffs."
