When "TACO" turns into "Big MAC," how Wall Street seeks a safe haven amid policy "chaos" and on the eve of the midterm elections

As the 2026 midterm elections approach, Wall Street is turning to a new trading theme known as "Big MAC" - "Big Midterms Are Coming" - to cope with the increasing policy uncertainty.

Recently, Trump has released a series of intense "quasi-policy" statements via social media, aiming to gain an advantage for the Republican Party in the elections this November. These moves have caused turbulence in the market: bank stocks plummeted after being required to set credit card interest rate caps at 10%, while defense contractors were hit hard by the president's call to suspend dividends and invest in production. Meanwhile, the ongoing attacks by the administration on the independence of the Federal Reserve have left the entire financial community uneasy.

This policy-level "chaos" is seen as a core risk for the market in 2026, forcing investors to reassess valuation logic in a "perfectly priced" market environment. Although major indices have performed relatively steadily, volatility at the individual stock and sector levels has significantly increased, with institutions like JP Morgan warning that U.S. stocks may perform poorly in the near term given the pressures facing the Federal Reserve.

With 42 weeks to go until the midterm elections, the unpredictability brought about by this "Twitter governance" is making it increasingly difficult to adhere to traditional trading strategies. Market participants are concerned that the White House may introduce specific risks targeting other industries at any time, thereby disrupting the existing market balance.

Emergence of the "Big MAC" Trade

Wall Street has always been keen on using acronyms to summarize trading logic. Following the popularity of the "TACO" trade (referring to Trump always ultimately "backing down"), Ned Davis Research's Chief U.S. Strategist Ed Clissold has proposed the new concept of "Big MAC," meaning "Big Midterms Are Coming." Clissold believes this will be the main market theme for 2026, focusing on the policy impacts before congressional voting and their subsequent effects.

Clissold points out that Trump has focused on the "affordability issue" in the U.S., a political appeal that has directly led to a series of actions targeting oil prices, mortgage rates, credit card rates, and federal funds rates. This politically driven policy intervention could have far-reaching effects on the stock market.

For risk-aware investors, "Big MAC" is more of a macro theme than a specific trading strategy. Clissold emphasizes in his report that policy actions targeting specific industries represent the main risks as the midterm election process unfolds. Among them, the financial sector faces the most obvious risks, with mortgages, credit cards, and the overall interest rate environment all within the policy crosshairs.

Policy "Chaos" and Individual Stock Impact

Tom Essaye, founder of Sevens Report, believes that the "chaos" of government policy constitutes an additional risk for the market in 2026. He is concerned that the market's reaction to Trump's attempts to rewrite economic and business rules is too muted, and this lack of response seems to be emboldening the administration further. **Essaye warns that, although we have not yet reached a critical point, uncertainty will ultimately take a toll on the market **

Although policies released through social media often only cause temporary market ripples, the sense of fear they bring is spreading among investors and strategists. Michael O’Rourke, Chief Market Strategist at Jonestrading Institutional Services LLC, stated that the sheer volume of Trump's remarks and their widespread impact on Wall Street make it difficult to adhere to any single trading strategy.

"You don't want to find that the stocks or sectors you hold become the target of attacks on any given day, with prices opening down 5% or 10%," O’Rourke said over the phone. He pointed out that with 42 weeks until the election, the White House has ample time to introduce other industry-specific risks, which could lead to a sell-off in a market with high valuations. If another industry faces administrative attacks, investors may choose to exit due to overvaluation.

Historical Pullback Patterns in Midterm Election Years

Historical data also supports the reasons for maintaining caution in midterm election years. According to CFRA Research, the average intraday pullback of the S&P 500 in midterm election years is as high as 18%. CFRA Chief Investment Strategist Sam Stovall noted that since 1945, when one party controls both the White House and both chambers of Congress and faces the risk of losing control, the average annual market gain is only 3.8%, with nearly half of the time resulting in losses.

While the macroeconomic policy's overall impact on the S&P 500 remains relatively low by historical standards, its effect on individual stocks is exceptionally significant. Dennis Debusschere, President and Chief Market Strategist at 22V Research LLC, pointed out that most of the impact from headline news is reflected at the company or industry level. Due to political and specific events, the realized volatility of individual stocks is nearly 22 points higher than the same metric for major indices.

Wall Street's Defensive Strategies and Long-Term Perspective

In the face of escalating political risks, some investors have turned to a more cautious outlook. JPMorgan's trading department indicated that U.S. stocks may underperform the broader market in the near term, given the pressures facing the Federal Reserve. Similarly, Scotiabank strategists stated on Tuesday that the "legal attacks" on Federal Reserve Chairman Jerome Powell could increase the risk premium required for investors to hold U.S. stocks, and that global markets may outperform the S&P 500 again in 2026.

To cope with this additional political risk, Kimberly Forrest, Chief Investment Officer at Bokeh Capital Partners LLC, advises investors to extend their investment horizons beyond the current political cycle, looking towards the next three to five years.

Forrest revealed that her firm holds shares of Exxon Mobil Corp. Although the company angered Trump last week by labeling Venezuela as "non-investable," Forrest stated that she is not concerned with these short-term noises and views the stock as a long-term investment target. For funds with shorter trading timeframes, she admitted that the current environment is quite challenging and offered a brief piece of advice:

"Wish you good luck."