TACO protects the body, the US stock market is not afraid of wind and rain, will the earnings season stir up another wave of excitement?

Inflation panic, global market plunge triggered by tariffs, and Middle East geopolitical crisis successively hit this year, but these crises were quickly resolved, and global stock market pricing shows that these negative impacts cannot shake the AI-driven "long-term bull market trajectory." At this point, it is hard to imagine what else could make investors uneasy, especially with the current threat of "Trump's Equal Tariffs 2.0," which also seems unlikely to shake investors as they have already mastered the "TACO" strategy. They are also betting that the upcoming earnings season will show an unprecedented AI boom continuing to drive the tech stock rally and push the stock market to new highs. Seasoned Wall Street bulls are increasingly unafraid of negative factors like Trump's tariffs, as their tolerance for negative impacts is becoming unprecedentedly strong. The resurgence of enthusiasm for global risk assets this week is an example: despite U.S. President Donald Trump's increased threats against major global trading partners like Japan and Brazil, including the threat of imposing 35% tariffs on Canadian goods and 50% tariffs on copper, Bitcoin surged to $118,000, hitting a historic high, the volatility in the U.S. bond market has cooled down, the MSCI global stock index and the S&P 500 index have once again hit historic highs, and global retail investors are once again making high-risk bets. This is a kind of "resilience," strengthened by facing major threats repeatedly, even if the prospect of a new round of trade conflicts led by the Trump administration is bullish, investors are turning to be bullish across various assets. Jamie Dimon, CEO of JPMorgan Chase, describes this as "complacency." But for traders who have profited handsomely from betting on cryptocurrencies, large tech giants, leveraged ETFs, and commodities benefiting from tariffs, it seems more like a "victory parade." "We fully believe that the recent surge in stocks, cryptocurrencies, and other risk assets is justified," said Max Ketner, Chief Mult-Asset Strategist at the global banking giant HSBC. "Not only stocks, but almost all risk assets are rising. In fact, investors are still underweighting risk assets and resisting the market trend." For the upcoming new round of U.S. earnings season next week, investors and traders generally believe that with strong performance from major tech giants and leaders in the AI industry chain, the U.S. stock market is expected to continue to hit new highs, especially with the "Big Seven Tech" stocks dominating the S&P 500 and Nasdaq 100 indices expected to lead the market higher. Continued rise in risk tolerance Although indicators signaling market pressure have risen again, traders are increasingly difficult to deter. The Bloomberg Global Trade Policy Uncertainty Index is on the rise, reflecting the "super sell-off" in global financial markets in April and in previous months. Cross-asset volatility remains low markets continue to remain stubbornly calm in the face of the latest negative trade headlines. The latest market data shows that bullish sentiment in risk assets remains strong, while cross-asset volatility remains low, indicating that risk assets are likely to continue on an upward trajectory. The S&P 500 index closed Friday just below its all-time high, while the risk premium for U.S. corporate bonds hovers near its lowest level of the year. In addition, Bitcoin exchange-traded funds (ETFs) continue to see net inflows. Volatility indicators collectively weaken, and as an indicator of market sentiment, the volatility of U.S. Treasury bonds has hit its lowest level in nearly three and a half years. Turmoil in the oil and gold markets continues to diminish. However, just as Trump warned this week that if countries could not negotiate, new and higher tariffs would take effect on August 1, the S&P 500 index hit a new all-time high under the leadership of tech giants that day. "The market always tends to ignore any event including tariffs, or even brief conflicts in the Middle East," said Josh Kutin, North American Multi-Asset Manager at Columbia Threadneedle Investments. "If the market does not react negatively overall to these issues, I find it hard to see the market turning bearish in the short term." Kutin said that when the market reacts violently to trade policy, the U.S. government often retreats, which has kept him calm and tactically overweight. Multiple portfolio indicators continue to show long signals strong market momentum + low volatility. Although the current level of the S&P 500 index seems "high," he still believes there is room for further upward momentum. "TACO" trading: Market bets that Trump will back down Kutin's bullish outlook, along with Ketner's from HSBC, reflect a popular trading strategy on Wall Street TACO (Trump Always Chickens Out): traders on Wall Street are betting that either the U.S. government will withdraw its tariff threats, or even if implemented, they will not be as harsh as Trump threatened and will not significantly drag down U.S. economic expansion. Regardless of the reason, even though Trump announced this week that tariffs on over a dozen countries could be as high as 10%, market sentiment still favors the bulls. The term TACO was created by a Financial Times columnist to describe Trump's wavering on tariffs after his "Liberation Day" speech on April 2, but ultimately he will choose to back down, and the stock market will rebound significantly. When asked about "TACO" at a press conference, Trump was furious, calling the question "malicious." The "TACO" strategy is now widely adopted by traders as the hottest trading strategy at the moment. Whenever Trump issues new, more aggressive tariff threats that trigger a market plunge, investors are betting that he will eventually back down or that the actual policy will weaken significantly from Trump's verbal threats, leading to a major buy-in at the right buying opportunities, and a significant bet on a market rebound shortly afterwards. Based on the "TACO" strategy, even though Trump announced this week that tariffs could rise to as high as 50% for the European Union and threatened to increase tariffs on steel, aluminum, and even copper, which the U.S. has long relied on for imports, the market did not see significant downside volatility, but only experienced minor fluctuations before starting a new rally under the influence of buying on dips. Trump this week applauded the tech and industrial stocks for hitting record highs on his social media, as well as the frenzy for cryptocurrencies. This bullish market confidence honed in an environment that punishes doubters repeatedly is making some in the investment community uneasy. "Investors are actually too confident in the idea that Trump will always back down," said David Lebovitz, Global Multi-Asset Strategy Manager at JPMorgan Chase. "The market seems to be testing the limits, to see how far they can push the risk before starting to crack." As trade policy uncertainties rise again this week, Morgan Stanley's CEO, Dimon, also warned that the market's continued bullish stance is predicated on an initial framework agreement between the U.S. and Europe, and the likelihood of a surprise interest rate hike by the Federal Reserve is much higher than market consensus. "Concerns have gone too far," said Christina Hooper, Chief Market Strategist at Invesco. She recommends reallocating to markets with more attractive valuations and diversification, such as Europe, the UK, and China. "When stock prices are almost perfect, disappointments are more likely to occur." The upcoming earnings season is expected to add fuel to the fire of the U.S. reaching new highs in the stock market Despite strong momentum, some bulls insist that hindering such a strong market trend would be a mistake. Ketner continues to increase his "overweight" position in U.S. stocks, saying that if the tariff blunder is withdrawn this week, it could actually become a bullish catalyst; a weaker U.S. dollar and strong earnings data from tech giants will also add fuel to the stock market in the upcoming earnings season. "We strongly oppose the 'complacency theory.' In the coming weeks, stocks and other risk assets are likely to continue to rise along the wall of worry." Mary Ann Bartels, senior strategist at Sanctuary Wealth, known as the "Wall Street Prophet," recently said that artificial intelligence (AI) will drive profit growth and push the S&P 500 index to new heights. She currently predicts that by the end of 2025, the U.S. stock market will rise to 7,000 points, up 12% from the current level. Bartels pointed out that winners in the U.S. stock market will continue to be winners. She is not worried about the market concentration of large tech companies. Bartels wrote, "Profit growth remains relatively scarce, concentrated in the technology and technology-related industries, industrials, finance, and utilities benefiting from accelerated electricity demand." She emphasized that as major companies continue to invest billions of dollars in AI computing resources, networks, and storage infrastructure, the AI industry is still in its early stages. "The profit and return on equity of tech companies have always been the strongest, which is why money continues to flow into these companies." Driven by the unprecedented AI boom, leading tech giants such as Nvidia, Microsoft, and Google, which are considered the "barometer of global tech stocks," continue to set new highs in the Nasdaq 100 index and rise more vigorously than the S&P 500 index. According to LSEG's statistics, in the second quarter, it is expected that the technology sector led by Nvidia and Microsoft will achieve the largest year-on-year profit growth among the 11 sub-industries of the S&P 500 index: the technology sector is expected to grow by 17.7%, and the communications services sector by 31.8%. The recent surge in Nvidia's stock price, becoming the first company in global financial history to achieve a market value of $4 trillion, is undoubtedly driven by the largest customer commitment to increase investment in AI computing infrastructure, indicating a strong demand for Nvidia's AI chips and high-performance AI server rack systems. To major Wall Street banks like Morgan Stanley, Bank of America, and global asset management giant BlackRock, companies like TSMC, ASML, and Applied Materials, together with Nvidia, show strong performance, indicating that the theme of AI computing power investment is the "strongest alpha" in the stock market even the export restrictions forcibly imposed by the U.S. government on China and the new trade war sparked by Trump have not been able to stop the surge in global AI computing demand led by Amazon, Microsoft, Alibaba, and Google. In conclusion, the markets are upbeat and investors are betting on the resilience of the market to overcome various challenges and continue on an upward trajectory. The strong performance of tech giants and companies in the AI industry chain is driving optimism and confidence in the market, propelling stocks to new highs.