Tom Lee Bets On 'A New Bull Market,' As Trump's Tariff Retreat Fuels 'TACO' Trade Amid 'Run It Hot' Optimism

Fundstrat’s Tom Lee has been betting on a “new bull market” following the spike in the volatility gauge in April, while another analyst believes that it is the “TACO” trade that is fueling the “run it hot” optimism in the market.

What Happened: According to Lee, the April lows were a “huge liquidation event,” as the CBOE VIX Index, or the fear gauge, spiked to the 60 level and the market was “reset,” fueling “a new bull market.”

“I think we had what was a miniature bear market, but has essentially rebirthed the new bull market,” he told CNBC.

The head of research at Fundstrat Global Advisors also expects “pretty shallow” dips from here, advising investors to consider small-cap stocks other than the Magnificent 7.

“As I look at the second half, I think the small caps really have a strong case to be made, because as long as we move towards a tariff resolution, or the markets feel that way, then I think investors can actually start putting flows back into stocks other than the Mag Seven," Lee said.

While a Federal appeals court temporarily reinstated Donald Trump‘s tariffs after the Court of International Trade invalidated them, the growing tensions with China and the ongoing court hearing about tariffs could keep the market on edge.

However, Bob Elliott of Unlimited Funds said in an X post that the “TACO” or ‘Trump Always Chickens Out’ trade could pave the way for a “Run It Hot” economic environment, characterized by growth-oriented policies and sustained stimulus, further fueling market optimism.

Elliott’s post signaled a widespread belief that Trump's possible tariff rollbacks or extensions are not only predictable but also conducive to a pro-growth economic stance.

According to him, “consensus” reflects market sentiment that TACO is priced in, meaning investors anticipate Trump’s tariff retreats, especially now that he is embroiled in the legal battle over the validation of his levied tariffs.

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See Also: Trump Tariff Uncertainty Enters Courts: Experts Say ‘Investors Should Expect Elevated Turbulence’ Amid The Bullish ‘Gridlock’

Why It Matters: On Friday, Trump accused China of violating an agreement with the U.S. to ease tariffs in his Truth Social post. However, Trump did not specify the details of this violation.

Treasury Secretary Scott Bessent on Sunday clarified that China was withholding critical minerals it agreed to release in a trade deal the country signed with U.S. negotiators last month in Geneva.

The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, fell on Friday. The SPY was down 0.11% at $589.39, while the QQQ declined 0.16% to $519.11, according to Benzinga Pro data.

On Monday, the futures of the S&P 500, Dow Jones and Nasdaq 100 indices were trading lower.

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