Wall Street Shaken by the Trump 2.0 Era

In Donald Trump’s new era, Wall Street faces an unprecedented whirlwind. Market narratives are shifting faster than even the most agile investment strategies. Tariffs are imposed, reversed, then reimposed. One day, the sentiment is “Sell America”; the next, there’s a stampede to “buy the dip.” At the same time, classic fiscal concerns coexist with unrestrained optimism driven by Nvidia’s AI productivity vision.

The President’s Unpredictability Complicates Strategy

Trump’s volatile approach — in trade, diplomacy, taxation, and beyond — creates a punishing environment for institutional investors. Macro hedge funds are suffering their worst start to a year in at least two decades, highlighting the challenge of forecasting economic cycles under this administration.

A Week of Chaos and Surprising Optimism

This week perfectly illustrated the disorder. As Trump bristled at jabs like “Trump Always Chickens Out” and faced legal decisions threatening key tariff policies, some investors prepared for market retaliation. But strong corporate earnings and renewed economic optimism restored risk appetite. The S&P 500 rose nearly 2% this week, capping a 6% gain in May — its best monthly performance since 2023.

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Macro Funds Struggle Amid the Storm

“Macro trading, always complex, has entered an entirely new level,” said JP Morgan’s Priya Misra. The HFRX Macro/CTA Index is down 4.3% year-to-date, its worst start since at least 2004. Systematic strategies were forced to de-risk during downturns, missing rebounds due to reduced exposure.

Defensive Bets Backfire Spectacularly

Volatility hedges collapsed in May. Defensive stocks lagged cyclical names by 10 percentage points — the second-largest gap since 2009. Stagflation trades, including those tracked by Goldman Sachs, posted historic losses. Even ETFs designed for protection, such as VIX products and BUFR, disappointed investors.

Retail Investors Reap Rewards Through Patience

Retail investors who held steady have been vindicated. After a record wave of dip-buying in April, over $10 billion flowed into Vanguard’s S&P 500 ETF (VOO). In such volatility, inaction proved wise: missing the five worst days yields 20%+ gains, while missing the five best leads to 16% losses.

A Strategic Lesson: Slow Is Smooth, Smooth Is Fast

Columbia Threadneedle’s Ed Al-Hussainy summed it up with a military adage: “slow is smooth, and smooth is fast.” Amid political and financial noise, patience and measured action may be the best tools. For macro traders, the battle has only just begun.

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