TACO Trade

Snapshot

Global markets rallied in May, driven by what many have dubbed the “TACO trade”, short for “Trump Always Chickens Out”. The surge followed news that the United States and China had agreed to a 90-day tariff truce, cutting tariffs on Chinese imports into the US from 145% to 30%.

Markets responded positively. The S&P 500 rose 6.3%, the STOXX Europe 600 gained 5.1%, the Nikkei 225 advanced 5.3%, and the ASX 200 added 4.2%. Big tech led the way, with the NASDAQ Composite jumping 9.7%.

Given the unpredictable nature of US trade policy, we caution against relying on the TACO trade moving forward. This is underscored by Trump’s 50% tariff on European imports scheduled for 1 June, later pushed to 9 July, and recent legal back-and-forth in the US courts regarding tariff enforcement.

Also during the month, progress was made on the “One Big Beautiful Bill Act”, which passed the House and is expected to clear the Senate in early July. The bill could add an estimated US$4 trillion to government debt over the next decade. It makes the 2017 Tax Cuts and Jobs Act permanent and introduces new tax breaks, including exemptions on tips, overtime, and auto loan interest for US-made vehicles.

The bill’s passage, coupled with expectations that the Federal Reserve will hold rates steady into the second half of 2025, pushed US two-year and ten-year Treasury yields higher.

In Australia, the Reserve Bank of Australia cut the cash rate by 0.25% to 3.85%. This marked the second cut in the current easing cycle and signalled greater comfort with the inflation outlook. Trimmed-mean inflation forecasts were revised slightly lower from 2.7% to 2.6%, while the outlook for wages and GDP growth was softened. Inflation risks are now seen as more balanced, helped by energy rebates and easing global demand. Markets expect another 0.25% cut at the RBA’s July meeting.

Looking Ahead

The past few months have been anything but dull. Trump’s maximalist approach to foreign and economic policy since April has tested market resilience. The aggressive tariffs and their rapid reversal sparked a V-shaped market move.

The legality and durability of the tariff regime, and how other nations respond, will remain front of mind for investors. So too will the outcomes of negotiations with key US trading partners, including Europe, Japan, South Korea and India by 9 July, and China by 11 August.

Regardless of the short-term noise, we believe our portfolios are well positioned. The Investment Committee continues to monitor developments closely and remains ready to act should conditions change.

Key Stocks

 

Qantas

Cutcher & Neale Australian Shares Model

Qantas Airways is Australia’s largest domestic and international airline, as well as one of the longest continuously operating carriers globally. Founded in 1920, the company operates a dual-brand strategy, offering full-service flights through Qantas and low-cost travel through Jetstar. Their service line also includes operations in loyalty programs, freight, and regional services.

Qantas maintains a global presence, operating flights to over 100 destinations across 26 countries, and has consistently invested in fleet renewal and service innovation. The airline is currently progressing with strategic initiatives, including “Project Sunrise”, aiming to launch non-stop flights from Australia's east coast to major global cities like New York and London.

Qantas was added to the Australian Shares Model in September 2024 and has contributed positively to overall returns since then. It has recently been one of the top-performing holdings in the portfolio, delivering a return of 17.11% over the past month.

 

GE Aerospace

Cutcher & Neale International Shares Model

GE Aerospace is a leading global provider of jet and turboprop engines, as well as integrated systems for airline operators. Based in the United States, GE Aerospace employs over 50,000 people worldwide and supports a large installed base of engines, providing critical maintenance, repair, and overhaul services to commercial defence aircrafts.

The company operates through two main segments: Commercial Engines and Services and Defence and Propulsion Technologies. Commercial Engines and Services covers jet engine design, manufacturing and overhaul services for commercial and business aviation. Defence and Propulsion Technologies provides similar services for military and government clients, as well as wide range of advanced engine components and systems for various defence aircraft models.

GE Aerospace was added to the International Shares Model in July 2024 and has been among the model’s top performers over the past month. It delivered a return of 18.40% in May, driven by the continued growth in global air traffic and demand for more fuel-efficient engines.

 

Qantas

Cutcher & Neale Australian Shares Model

Qantas Airways is Australia’s largest domestic and international airline, as well as one of the longest continuously operating carriers globally. Founded in 1920, the company operates a dual-brand strategy, offering full-service flights through Qantas and low-cost travel through Jetstar. Their service line also includes operations in loyalty programs, freight, and regional services.

Qantas maintains a global presence, operating flights to over 100 destinations across 26 countries, and has consistently invested in fleet renewal and service innovation. The airline is currently progressing with strategic initiatives, including “Project Sunrise”, aiming to launch non-stop flights from Australia's east coast to major global cities like New York and London.

Qantas was added to the Australian Shares Model in September 2024 and has contributed positively to overall returns since then. It has recently been one of the top-performing holdings in the portfolio, delivering a return of 17.11% over the past month.

 

GE Aerospace

Cutcher & Neale International Shares Model

GE Aerospace is a leading global provider of jet and turboprop engines, as well as integrated systems for airline operators. Based in the United States, GE Aerospace employs over 50,000 people worldwide and supports a large installed base of engines, providing critical maintenance, repair, and overhaul services to commercial defence aircrafts.

The company operates through two main segments: Commercial Engines and Services and Defence and Propulsion Technologies. Commercial Engines and Services covers jet engine design, manufacturing and overhaul services for commercial and business aviation. Defence and Propulsion Technologies provides similar services for military and government clients, as well as wide range of advanced engine components and systems for various defence aircraft models.

GE Aerospace was added to the International Shares Model in July 2024 and has been among the model’s top performers over the past month. It delivered a return of 18.40% in May, driven by the continued growth in global air traffic and demand for more fuel-efficient engines.

About The Author

Wade is the head of the Investment Services division at Cutcher & Neale and has over 10 years of industry experience in accounting and investment advisory roles.

Ryan is our Portfolio Manager, bringing over 15 years of experience in managing multi-asset investment portfolios with a specialisation in fundamental equity analysis.