A proprietary market stress indicator from Nomura that has predicted three previous Trump administration policy pivots suggests the White House is not yet facing enough pressure to force a de-escalation in the Iran conflict. The indicator, which tracks the S&P 500, 10-year Treasury yields, and energy prices, fell to 1.7 standard deviations on May 7 from 2.3 earlier in the week.
"In three worthy-to-watch TACO cases, when our indicator reached approximately 3.0 standard deviations or higher, Trump has TACO-ed," Craig Chan, global head of FX strategy at Nomura, wrote in a May 7 research note. "The higher the Z-score, the greater the pressure on Trump to consider a TACO."
The indicator’s decline followed a drop in oil prices and a retreat in Treasury yields amid hopes for a U.S.-Iran peace deal. The S&P 500 fell 0.4% to 7,337.11 on Thursday, while the 10-year Treasury yield climbed to 4.38 percent. U.S. crude futures, after dipping during the session, later jumped over 2 percent to $96.8 a barrel.
While the reading remains below the 3.0 reversal threshold, the framework provides a data-driven guide for what could happen next. If the stalemate with Iran persists and pushes energy prices higher, the indicator could quickly return to the critical zone that has historically prompted a change in policy or rhetoric from the administration.
Nomura’s framework identified three key instances during the second Trump term where a market stress reading near 3.0 standard deviations preceded a significant policy shift.
The first occurred on April 9, 2025, when the administration granted a 90-day reprieve on tariffs after the S&P 500 component of the indicator spiked to a Z-score of 3.2. A similar event unfolded on Oct. 12, 2025, when President Trump walked back a threat to impose 100% tariffs on all Chinese goods after the S&P 500 suffered its worst single-day loss since April and its indicator component hit 3.1.
Most recently, the indicator’s energy component was the primary driver, soaring to 3.9 standard deviations on March 30, 2026, during the peak of the Iran conflict. The next day, Trump signaled a potential U.S. withdrawal from the region within weeks, causing the overall indicator to fall back to 1.8 by mid-April.
The focus on a mechanical indicator comes as other market gauges send conflicting signals. The equity risk premium, which measures the earnings yield of stocks over risk-free bonds, is approaching zero for the first time since 2024, a level that has preceded several major market downturns.
This has some strategists on edge. The low premium could be a "trip wire" for stocks, according to Gina Martin Adams, chief market strategist for HB Wealth. Brad Conger, chief investment officer at Hirtle & Co., said he was concerned about the low compensation for taking equity risk, recalling the dot-com bubble.
However, others remain focused on fundamentals. "It’s profits that drive equity markets," said Michael Rosen, chief investment officer of Angeles Investments, pointing to a strong start to the year for corporate earnings. "While valuations have been high over the past decade, profit growth has been exceptionally strong."
For now, traders watching Nomura’s indicator will be focused on one primary variable. If the U.S.-Iran impasse is not resolved, energy prices could be the catalyst that pushes the market’s pain level back toward the magic number of 3.0.
This article is for informational purposes only and does not constitute investment advice.
