Stocks staged a relief rally Monday after President Trump softened his tone on China, easing fears of a full-blown trade war that sparked a $2 trillion sell-off last week.
The rebound followed Trump’s weekend post on Truth Social, where he assured followers that “it will all be fine,” just days after threatening to impose 100% tariffs on Chinese goods starting Nov. 1.
But while those comments helped calm investor jitters, strategists warn this could be the biggest test yet for Wall Street’s favorite reflex: buying the dip.
Citi’s equity trading strategy team, led by Stuart Kaiser and Vishal Vivek, said last week’s tariff headlines broke the market’s months-long calm, challenging the “buy the dip” instinct that has defined trading since May.
The group described the moment as a “test” of how much risk investors are willing to take if Trump follows through with the proposed China tariffs, a move that could put both sentiment and corporate guidance for the rest of the year on the line.
The pattern is familiar: Tariff escalation sparks a sell-off, Trump tempers his language, and investors rush back in — a playbook traders have dubbed the “TACO trade,” shorthand for “Trump Always Chickens Out.”
Read more: The latest news and updates on Trump’s tariffs
The turmoil comes at a critical time for markets, with earnings season kicking off and the government still shut down. That adds another layer of uncertainty, with key economic data like CPI and retail sales delayed just as major banks — including JPMorgan (JPM), Goldman Sachs (GS), and Citigroup (C) — prepare to report results.
“It’s a real problem without the government data,” Kathy Jones, chief fixed income strategist at Charles Schwab, recently told Yahoo Finance. “We have private-sector data that’s giving us some information, but it’s not at the level that the government data is.”
And that uncertainty could eventually bleed into investor sentiment.
Evercore ISI’s Julian Emanuel warned that “high, higher, highest has its limits,” noting investors may finally be reaching the point of exhaustion after months of steady gains.
Read more: How to protect your money during turmoil, stock market volatility
For some, however, the buy-the-dip mentality remains alive and well, especially among retail traders.
“I don’t see the buy-the-dip mentality stopping anytime soon,” Lou Basenese, executive vice president of market strategy at Prairie Operating Co. and founder of TheBigSkinny.com, told Yahoo Finance on Monday.
