When will Trump call off the war against Iran? Wall Street strategists: U.S. stocks need to fall at least 10%

This week, due to attacks by the United States and Israel on Iran, global financial markets experienced intense shocks, especially with the U.S. stock market plunging sharply at one point.

Many investors are betting that as U.S. stocks fall sharply, President Trump may back down on the war issue, known as the “TACO” trade. But how much of a decline would it take to make Trump feel overwhelmed?

Geopolitical expert and chief strategist at BCA Research, Marko Papic, said that U.S. stocks need to fall hard enough for Trump to start restraining Iran’s war actions. Currently, the decline may still be far from enough.

U.S. stocks need to drop 10% to prompt Trump to step back

Papic wrote in his report:

“We believe the S&P 500 must fall more than 10% to truly ensure a ‘Trump put.’ We think this could happen sooner or later, and are open to both possibilities. But a double-digit decline in U.S. stocks would undoubtedly have a greater impact.”

The “Trump put” refers to the market’s expectation that Trump would step in to rescue the market during a sharp decline, creating a downside protection similar to a put option.

However, since the U.S. launched attacks on Iran last Saturday, the U.S. stock market’s decline this week has been limited. The S&P 500 briefly dropped over 2% intraday on Tuesday but ultimately closed down only 0.9%. By Wednesday, U.S. stocks rose 0.78%, essentially recovering the previous day’s losses.

This is not the first time Papic has predicted that Trump might yield under market pressure.

In March last year, just before Trump announced global reciprocal tariffs, Papic predicted that if the S&P 500 fell 15% to 20%, Trump would abandon the trade war.

By April, when the index had fallen 19% from its February high and 10-year Treasury yields surged, Trump indeed announced a pause on additional tariffs.

War cannot be ended unilaterally by Trump

Following the U.S.-Israel attacks on Iran, Iran quickly restricted shipping through the Strait of Hormuz, causing international oil prices to rise, as this strait accounts for 20% of global oil transportation.

This caused panic among investors about the outlook for U.S. stocks, as rising oil prices could lead to higher inflation in the U.S., forcing the Federal Reserve to keep interest rates high.

On Tuesday, U.S. Eastern Time, Trump stated that the U.S. would ensure the passage of ships through the strait, which eased investor concerns slightly. Driven by this news, U.S. stocks rose for the first time since the outbreak of war last Saturday, and oil prices fell for the first time.

But Papic warned that ending the war is not so easy: even if Trump tries to de-escalate, Iran may not be willing to agree to a ceasefire.

Currently, the focus is on the fact that U.S. attacks have resulted in the deaths of Iran’s Supreme Leader Khamenei and other senior officials, meaning the Iranian regime faces greater threats than before. Papic believes that compared to past conflicts, Iran may respond with more intense resistance this time.

Papic wrote: “Our clients and the media are shocked by Iran’s strong retaliatory actions against Gulf countries and the global energy sector, and their shock is even more surprising to us. This indicates that ordinary investors do not fully understand how much pressure Iran is under.”

“This time, Iran must— from a rational and game theory perspective—apply pressure on the U.S. and the entire global economy,” he added.

(Source: Cailian Press)