For anyone on Wall Street still clinging to a time-honored macro-investing playbook, Trump 2.0 has been a source of endless punishment.
Market narratives keep shifting faster than traders can adjust positions. Tariffs are on, tariffs are off — then they’re on again. One minute it’s “Sell America,” the next “buy the dip.” Old-school fiscal anxieties land, just as Nvidia Corp. sells a vision of AI-driven productivity nirvana.
To cap it off, President Donald Trump’s unpredictability — trade, foreign relations, taxes and so on — is making life brutal for institutional pros paid to predict the market cycle. And the numbers show it: macro hedge funds are off to their worst start to a year in at least two decades.
That confusion was on full display this week. As the US commander-in-chief fumed over the “Trump Always Chickens Out” jab, and again as a legal ruling threatened his signature tariff weapon, some on Wall Street braced for retaliation. Yet in the end — buoyed by signs of still-solid corporate earnings and bets on economic resilience — Trump’s combative posture failed to scare off risk-loving investors.
The S&P 500 closed up almost 2% this week, notching a 6% gain overall in May, its best monthly performance since late 2023. High-yield bonds also climbed in May, with an index posting its highest return in 10 months.
“Macro trading, which has never been easy, has just taken on a whole other difficult dimension,” said Priya Misra, portfolio manager at JP Morgan Asset Management. “You can still position for a macro trend but you have to absolutely prevent getting whipsawed.”
Nothing this week inspires much confidence that the rally is built to last. Traders still see the economy sputtering enough to warrant two Federal Reserve rate cuts this year, while the inflation risk from tariffs remains as uncertain as ever.
At the same time, policy flip-flops, data head-fakes, and the White House’s reactive posture have made macro forecasting a bitter exercise. In just six months since Trump’s re-election, markets have priced in everything from an economic boom and resurgent inflation to outright recession.
These fast-moving narratives are confounding the macro set, including trend-following quants, futures speculators and managers trying to stay ahead of shifting data. The HFRX Macro/CTA Index is down 4.3% this year through Wednesday, the worst start since at least 2004.
“It’s been very hard to filter the noise and get to the signal,” said James Athey, a portfolio manager at Marlborough Investment Management Ltd. “Many systematic strategies have probably struggled, forced to derisk into falling markets, only to find they had low net and gross risk levels when the market turned so they missed the recovery.”
May will go down as a stretch when defensive strategies adopted in the April chaos backfired with rare force. Pain hit value stocks, bearish options, fixed-income havens, trades tied to stagflation — in short, anything premised on the idea that April’s volatility would linger or worsen.
Treasuries fell as traders questioned the sustainability of US debt. An ETF tracking long-dated bonds (TLT) trailed the S&P 500 by the most since 2022.
Playing it safe in equities proved costly, too. Defensive shares lagged their cyclical counterparts by 10 percentage points, the second-widest gap since the start of the 2009 bull run. Betting on stagflation-like outcomes — slowing growth and strong inflation — misfired. A Goldman Sachs Group Inc. stock basket wagering that scenario tumbled for the worst month in two decades.
Prudent defensiveness quickly turned into a liability. Two of the largest ETFs linked to the Cboe Volatility Index, or VIX each slumped at least 25%, a moment of reckoning for those who have piled into these protective funds this year.
Meanwhile, popular buffer funds such as the FT Vest Laddered Buffer ETF (BUFR) — a darling trade of 2025 that limits downside risk while capping the upside — underperformed. So did derivative-powered ETFs like the JPMorgan Equity Premium Income ETF (JEPI) — strategies favored by income-seeking investors that attracted billions this year.
Amid the twists and turns, retail investors who stayed the course are having a moment of quiet vindication. After a record pace of dip buying in April, $10 billion has since flooded the Vanguard S&P 500 ETF (VOO), a favored destination of retail money.
For many investors, the best strategy has been to do nothing, rather than venture into the almost impossible task of figuring out the next Trump turn. Since election day, the S&P 500 is up 2% overall — masking how vicious the whiplash has been, with stocks sinking to the brink of a bear market before a powerful comeback. Another way to frame the market-timing challenge: If you missed the worst five days, you’re up over 20% now. If you missed the best five, you’re down 16%.
To Ed Al-Hussainy, a rates strategist at Columbia Threadneedle, the mistake traders keep making is underestimating the economy’s natural resilience. Amid the turbulence, his team is pulling back from aggressive positions.
“There’s a great quote that I think comes from the army: ‘slow is smooth, and smooth is fast,’” he said. “They use it to train military recruits. Applies to macro traders as well.”
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