Retail traders jump on 'Trump Always Chickens Out' trade as markets shake off tariff fears

Everyone on Wall Street saw the Tuesday selloff. Some thought it might finally be the one that pushed Donald Trump over the edge. The story was that Trump wanted to punish Europe with fresh tariffs over Greenland. But like always, he backed off. And like always, the markets bounced.

Retail traders didn’t wait around. They’ve seen this before. While the S&P 500 dropped hard, individual investors pushed $4 billion into U.S. stocks that day. Then they threw in another $2.3 billion the next day, right before Trump pulled back.

The S&P 500 shot up 1.2% on Wednesday and gained another 0.6% on Thursday. That wiped out the entire drop.

Retail crowd jumps back into ETFs as tariff scare fades

The strategy is now called the TACO trade, short for Trump Always Chickens Out. Every time Trump makes a big threat, stocks fall. Then he drops the threat, and the bounce follows. It worked last April. It worked in the summer. And it worked again this week.

Lale Akoner, who handles global strategy at eToro, said: “Retail appetite has been notably strong, with individual investors stepping into markets despite volatility driven by tariff headlines, geopolitical uncertainty and policy noise out of Davos.”

She said the amount of money flowing in shows people are still betting on risky assets.

Most of the buying went into exchange-traded funds. From January 14 to 21, big-name ETFs like Invesco QQQ, SPDR S&P 500, and Vanguard S&P 500 took in the biggest weekly inflows ever. Those three alone usually make up about 40% of all retail ETF trades, and they were the top picks again.

Kevin Xu, who used to be a retail trader and now runs a trading chat app called Alpha, said: “We all know Trump’s playbook now. He threatens something big, then walks back when he gets what he wants. The market overreacts, and this becomes a tremendous buying opportunity.”

Retail traders rotate into new names and go heavy in options

This week’s buying wasn’t random. It’s part of a long pattern. Retail traders kicked this off in January 2025, when China’s DeepSeek AI app caused a quick selloff in tech stocks.

Three months later, Trump’s first round of tariffs sent stocks into a double-digit drop. He gave up within the week. The rebound that followed became the biggest single-day rally in over 40 years.

Arun Jain from JPMorgan said:

Retail traders now make up nearly 25% of all activity on U.S. exchanges. Their impact goes beyond stocks. During last week’s cold snap, natural gas prices jumped. Retail traders used that spike to cash out of the BOIL ETF, locking in profits fast.

They’re also shifting from just the big tech names. While Tesla and Amazon are still getting a lot of action, other names like Netflix, Micron, Intel, and Taiwan Semiconductor are showing up more. Netflix posted earnings Tuesday. The others report next week.

On the options side, retail trading is on fire. Scott Rubner at Citadel Securities said daily trades in both shares and options are over 40% higher than the average from 2020 to 2025. Retail buying has been stronger than selling for seven straight weeks, and in 37 of the past 38.uying has been stronger than selling for seven straight weeks, and in 37 of the past 38. and in 37 of the past 38.

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