First Came the TACO Trade. Now It’s the NACHO.

SPEAKER_1 (0:00)

Sponsored by Wellington Management, pioneering investment strategies for nearly 100 years. Visit wellington.com.usawelf.

Luke Vargas (0:10)

British Prime Minister Keir Starmer fights for his job as a rebellion against him spills into markets. Plus another midterm setback for Democrats and a new acronym makes the rounds on Wall Street, the so-called nacho trade.

Caitlin McCabe (0:24)

The idea with not a chance Hormuz opens is essentially this all-important waterway that we've all been watching so closely won't open until there's enough economic pain inflicted that there needs to be some sort of resolution to the conflict.

Luke Vargas (0:40)

It's Tuesday, May 12th. I'm Luke Vargas for the Wall Street Journal. And here is the AM Edition of What's News, the top headlines and business stories moving your world today.

We begin in the UK, where the pound is falling, and borrowing costs have surged to their highest level since 1998 The turmoil in markets is being triggered by a political crisis, as Prime Minister Keir Starmer faces rising pressure to step down after his Labor Party suffered one of its worst performances ever in local elections last week. This morning, a cabinet member resigned, saying the country faces enormous challenges, and that Starmer cannot deliver the changes needed. Nearly one in five labor lawmakers have made similar statements urging Starmer to quit. The US. Supreme Court has greenlit Alabama's efforts to redraw its congressional map, likely leading to the elimination of a majority-black district currently held by a Democrat. Alabama Attorney General Steve Marshall, heard here courtesy of Fox 54 News Huntsville, applauded the ruling, which will give Alabama's Republican-led legislature control over state maps.

Steve Marshall (1:52)

My job in this office was to put the legislature in the best possible legal position to draw a congressional map that favors Republicans seven to zero.

Luke Vargas (2:01)

A plaintiff in the case, Shalila Doughty, said the ruling felt like a step backwards towards the Jim Crow era for congressional representation, and she predicted that Alabama would eventually eliminate its final majority-black district. Yesterday's ruling comes after the Supreme Court last month sharply restricted states from using race to draw voting districts. According to the Cook Political Report, Republicans stand to gain between two and twelve US. House seats in November as a result of redistricting efforts, leaving some blue state Democrats to start targeting map changes ahead of the 2028 election.

House lawmakers are investigating OpenAI CEO Sam Altman's personal investments as the company heads for an IPO. The probe into potential conflicts of interest comes after a Wall Street Journal article detailed Altman's efforts to have OpenAI back companies he personally invested in and coincides with a lawsuit brought by Elon Musk alleging the company's shift from a non-profit was manipulative. While OpenAI's board chairman defends Altman's transparency, Republicans argue that Altman's investment in other companies could pose a conflict of interest because Altman and OpenAI's involvement could boost their value.

Well, elsewhere in the AI race, Elon Musk's Grok is losing ground as downloads fell from $20 million in January to just $8.3 million in April. An agreement by parent company SpaceX to rent massive computing power to Anthropic is also leaving Grok's ability to catch up to other chatpots in doubt. The deal provides Anthropic with the essential computing power needed to scale. While Musk and Grok's parent company didn't respond to requests for comment, in public statements Musk has characterized XAI, the owner of Grok, as quote the smallest of the AI companies. And a new acronym is Making the Rounds on Wall Street after yet another trading day characterized by rising oil prices and treasury yields. Reporter Caitlin McCabe stepped out of the JP Morgan Global Markets Conference in Paris to break it down for us.

Caitlin McCabe (4:08)

So this term is NACHO and it stands for Not a Chance Hormuz Opens. And it's really an iteration of the taco trade that we saw last year that became a very popular acronym on Wall Street. Taco stood for Trump Always Chickens Out. It was this idea that he would come and put forth this tariff policy, the markets would freak out and eventually he would walk that back. So the idea with Not a Chance Hormuz Opens is essentially this all-important waterway that we've all been watching so closely won't open until there's enough economic pain inflicted that there needs to be some sort of resolution to the conflict.

Luke Vargas (4:50)

So what then is the bet exactly, Caitlin? Besides that, if the strait remains closed, oil prices I presume are going to stay higher for longer.

Caitlin McCabe (4:58)

So oil prices is definitely one way that people have been trading this. And then another way to play this is rising interest rates because people expect inflation to accelerate as a result of oil prices feeding through into consumer prices. One thing to keep in mind is I think in the Trump administration, people love to assign an acronym or a name to the way that things are trading. Some of it's a bit tongue-in-cheek, so I wouldn't definitely put all your money into the nacho trade, especially just because we've seen markets swing so violently really across all asset classes and certainly not all asset classes are affected either. I mean, look at the stock market. It continues to rise to fresh records really independently of what we've been seeing in the war in Iran. People are very excited about the AI trade. We're seeing chip stocks continuing to rise to new highs, and that's been lifting the market higher pretty much almost day after day.