MW 3 reasons why investors have largely ignored Trump's tariff threats as Aug. 1 deadline approaches

By Joseph Adinolfi

Stocks sank in April after Trump announced his 'liberation day; levies. This time around, investors have mostly shrugged it off.

Investors over the past few weeks have countenanced a barrage of tariff threats as the Trump administration has ratcheted up the pressure on U.S. trade partners ahead of its Aug. 1 deal deadline.

Almost none of these headlines have had much of a lasting impact on markets, however.

On Friday afternoon, the Financial Times reported that the White House was seeking tariffs of 15% to 20% on the European Union, a major U.S. trading partner. The figure was higher than expected, and the S&P 500 SPX slid to session lows shortly after the report was published. But the index didn't linger there for long. It finished Friday little changed at 6,296.79, according to Dow Jones Market Data.

Given the intensity of the selloff that followed when President Trump unveiled his April 2 "liberation day" tariffs, this might seem surprising. That episode triggered a market meltdown. One week later, Trump announced a 90-day delay on many of the levies to help calm things down.

For whatever reason, investors don't appear too worried about a repeat.

After sitting out the early stages of the rebound, professional investment-fund managers have come charging back into stocks. According to the latest reading from the BofA Global Fund Managers' Survey, risk appetite has risen at the fastest pace on record over the past three months.

Why are Wall Street professionals seemingly so confident? Here are a few theories.

Trump's threats are just a pressure tactic

By now, many investors have heard of the "TACO trade." Popularized in May by a columnist for the FT, the acronym stands for "Trump Always Chickens Out."

The idea is that, if markets turn wobbly like they did in April, Trump will once again reverse course on his tariff push.

But with stocks back near record highs, some fear Trump might feel emboldened to take a hard line.

Time will tell if there is anything to this. But Dennis DeBusschere of 22V Research has spoken with a number of investors, and he said in commentary shared with MarketWatch that many have fallen back on the idea that Trump's aggressive tariff push is a negotiating tactic.

Frustrated with the slow pace of talks, it seems the president is trying to incentivize U.S. trade partners to speed things along.

"The expectation is that tariffs will be lowered once negotiations are done," DeBusschere said.

Then again, investors largely felt the same way in November after Trump's electoral victory. Stocks and cryptocurrencies initially soared on the prospect of Trump returning to the White House. They were quickly disabused of this notion after Inauguration Day.

Courts will likely block the tariffs

Back in May, two federal courts ruled that Trump had no authority to levy his "liberation day" tariffs. The administration challenged these rulings, and an appeals court quickly issued an injunction that allowed the levies to remain in place for the time being.

Now, the expectation is that even if Trump were to impose steep tariffs similar to what was unveiled on "liberation day," the levies likely won't hold up in court, according to DeBusschere.

Investors are focused on corporate earnings and economic reports

Major U.S. equity indexes like the S&P 500 and Nasdaq Composite COMP were trading just shy of record territory on Friday.

A strong start to the latest quarterly corporate earnings has been credited with pushing stocks higher lately.

Investors have also cheered the latest data on employment and retail sales, which have suggested the U.S. economy has taken the uncertainty surrounding Trump's trade agenda in stride.

The passage of Trump's budget bill, the One Big Beautiful Bill Act, has also helped lift investors' mood.

"Back in April, we didn't know how the budget bill was going to come out, we didn't know what tax policy was going to be for 2026, and now we know, so I think the markets have been able to lean into that a little bit," said Erik Aarts, senior fixed-income strategist at Touchstone Investments, in an interview with MarketWatch.

The S&P 500 tallied a weekly gain on Friday, as did the Nasdaq Composite COMP. The Dow Jones Industrial Average DJIA, meanwhile, declined for the second straight week, Dow Jones data showed.

-Joseph Adinolfi

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July 19, 2025 07:00 ET (11:00 GMT)

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