Oil prices climbed to their highest level in a month on Tuesday, with Brent crude topping $85 a barrel as fighting between the United States and Iran intensified. Yet U.S. equities have shown surprising resilience through the volatility — a disconnect traders are now describing using two competing, tongue-in-cheek Wall Street acronyms: TACO and NACHO.
The Numbers
Brent crude climbed roughly 2%–4% to as high as $86.73 a barrel, while U.S. West Texas Intermediate rose to around $79.56–$80.55 a barrel, marking one of the sharpest sustained rallies since the current round of U.S.-Iran hostilities reignited. Despite the surge, oil remains well below its wartime peak of nearly $120 a barrel reached earlier in the conflict. Even so, equity markets shrugged off much of the pressure Tuesday: the Nasdaq rose about 0.9%–1.1%, the S&P 500 gained roughly 0.4%–0.8%, and the Dow eked out a modest gain, aided partly by strong bank earnings from Goldman Sachs, Bank of America, and Wells Fargo as the second-quarter earnings season kicked off.
What Triggered the Latest Oil Spike
Crude extended its gains after President Trump reasserted plans to reinstate a naval blockade around the Strait of Hormuz, with uncertainty deepening as both the U.S. and Iran continue to assert control over the critical waterway. Fighting has kept oil tankers from using the strait to deliver crude to customers from the Persian Gulf, driving up fuel prices worldwide — AAA gas price tracker Patrick De Haan warned that with wholesale gas prices climbing sharply, retail prices in "price cycling" states could jump more than $4 a gallon overnight in some markets. Notably, oil eased off its session highs at one point Tuesday after Trump abandoned his earlier demand for ships to pay a 20% "protection fee" to transit the strait, saying in a Truth Social post that he'd decided to "replace the 20% United States Reimbursement Fee with Trade and Investment Deals" instead — a reversal that itself became a data point in the market's ongoing debate over how seriously to take the administration's shifting Hormuz policy.
Enter the TACO Trade
The relative calm in equities despite soaring oil prices has become known on trading desks as the "TACO trade" — shorthand for "Trump Always Chickens Out," a reference to the pattern of Trump making aggressive geopolitical or trade threats that markets have learned, over time, tend to get walked back or softened before their most damaging effects materialize. State Street Global Advisors analysts described the dynamic bluntly in a recent note: "The TACO trade and NACHO trade are playing out simultaneously... as high energy prices have not hindered a rebound in the S&P 500 to fresh all-time highs." The firm noted that traders remain cautiously optimistic negotiations could eventually produce a lasting peace agreement and reopen the strait — though they stressed markets still require a "tangible peace deal" before fully restoring bets on aggressive Federal Reserve rate cuts.
But There's a Competing Narrative Too: NACHO
Not every corner of the market is fully buying the TACO thesis. A rival acronym — NACHO, for "Not A Chance Hormuz Opens" — has emerged among traders increasingly skeptical that Trump's repeated statements about reopening the strait will translate into a swift resolution. As eToro market analyst Zavier Wong put it, "For most of this crisis, every ceasefire headline triggered a sharp selloff in oil, and traders kept pricing in a resolution that never came. NACHO is an acknowledgment that higher oil isn't a temporary shock to trade around, it's the current market environment." Aviva Investors senior economist Vasileios Gkionakis added a note of caution to the overall calm, observing that "the clearest signal has come from rates markets, where the front end has repriced sharply higher alongside a notable flattening of most yield curves" — a sign that even as equities stay composed, fixed-income markets are pricing in a more prolonged energy shock.
Inflation Data Complicates the Picture
Adding a further layer to Tuesday's mixed signals, June CPI data came in cooler than expected, with headline inflation at 3.5% year-over-year (versus a forecast 3.8%) and core CPI at 2.6% (versus a forecast 2.8%). The softer print slashed the market's odds of a July Fed rate hike to roughly 16%–17%, down sharply from over 40% before the data. Fed Chair Kevin Warsh, in his first extended public remarks since taking over the central bank, struck a firm tone on inflation even as he touted the economy's underlying resilience, saying he would not tolerate persistently sticky price pressures — a stance that leaves the door open to tighter policy later this year if the Gulf conflict continues pushing energy costs higher.
Energy Stocks Are the Standout Winners
While broader equities have proven resilient rather than euphoric, one sector has clearly benefited from the oil spike: refiners. Valero Energy, Marathon Petroleum, Phillips 66, and Par Pacific Holdings all touched all-time highs Tuesday, while PBF Energy, Delek US Holdings, and HF Sinclair traded near their own record levels. The moves reflect exceptionally wide crack spreads — the profit margin refiners earn between crude input costs and refined product prices — and cap off a remarkable 2026 for the group: Valero is up 83% year-to-date, Marathon 86%, Par Pacific more than doubled at 108%, and PBF Energy up 123%.
What's Next
With Trump continuing to send mixed signals on Strait of Hormuz policy — reasserting blockade plans one moment, swapping fee demands for trade deals the next — and Iran showing no clear sign of relinquishing its own claims over the waterway, traders are likely to keep debating whether the TACO or NACHO framework better describes where markets are headed. For now, cooler-than-expected inflation data is giving the Fed some breathing room, but with Brent above $85 and rates markets already pricing in a more persistent energy shock, that breathing room could narrow quickly if the Gulf standoff escalates further.