Yesterday, all three major U.S. stock indexes rose: the Dow Jones Industrial Average increased by 1.78%, the Nasdaq Composite rose by 2.47%, and the S&P 500 climbed by 2.05%. The main reason for this rally is that the market believes it has fully grasped Trump's behavioral logic, significantly reducing unknown risks.

American financial institutions have even humorously dubbed this phenomenon 'TACO Tuesday,' where 'TACO' stands for 'Trump Always Chickens Out.' This metaphor vividly depicts Trump's policy style: seemingly tough like a Mexican tortilla, but crumbles upon contact. This establishment of 'certainty' has injected confidence into the market, driving the stock market upward. However, whether this situation is sustainable and how the market will transition to the next phase is worth further discussion.

We often say that Trump likes to 'flip pancakes,' favoring tactics that work temporarily but often ends up compromising after initially asking for a sky-high price. After four months of observation, the market has figured out his bottom line. This predictability has temporarily reduced investor uncertainty, becoming a driving force for the stock market's rise. However, as this tactic becomes less novel, a subtle shift in the market may be brewing. If Trump were to deviate from expected behavior, such as suddenly insisting on a hardline stance, the market could experience significant fluctuations. Therefore, while investors are enjoying the current rally, they also need to remain vigilant.

As Trump's negotiations with various countries progress, investors are beginning to believe that the impact of the tariff war is winding down, and the pressure on U.S. inflation will not persist in the long term. This optimistic sentiment further supports the performance of the stock market. However, this judgment still requires data validation. The PCE to be announced this Friday will be a key indicator, and subsequent economic data will also provide more clues about inflation trends. If the PCE data exceeds expectations, indicating rising inflation pressure, market optimism may be shattered, and the stock market could face a risk of correction.

Another positive factor for the stock market's rise comes from the alleviation of the Japanese bond crisis. On Monday, Japan's Ministry of Finance indicated through a survey of market participants that it might reduce the issuance of super long-term bonds, effectively lowering Japanese bond yields. However, there are two important preconditions behind this: first, Trump's attitude toward Japan's acquisition of U.S. steel has softened; second, Japan is negotiating with the U.S. to ease restrictions in the automotive industry by continuing to purchase U.S. Treasury bonds. The logic of this compromise is clear: the Japanese automotive industry is a pillar of its economy, and only if the automotive industry is profitable can Japan maintain low-interest bond issuance and have the capacity to purchase U.S. bonds. Meanwhile, the U.S. is indirectly supporting its own economy through this concession. This high degree of interdependence in international policies not only alleviates pressure on the Japanese bond market but also provides external benefits for the U.S. stock market.

In summary, the rise of the U.S. stock market benefits from the market's understanding of Trump's behavioral logic, optimistic expectations regarding the tariff war's impact, and the global market stability brought about by the alleviation of the Japanese bond crisis. However, this rally is not without hidden dangers. The predictability of Trump's policies may be disrupted by unexpected changes, the uncertainty of inflation data could shake market confidence, and the international economic policy game is full of variables. Investors should closely monitor the PCE data this Friday and subsequent international policy dynamics, preparing to respond to volatility while enjoying current gains.
The market's support for Trump's 'tortilla logic' may sustain the rally for a while, but when the 'crumbling' truly occurs, the next phase of movement may no longer be so gentle.