In the "Trump 2.0" era, macro trend judgments are "constantly slapping faces," and the best strategy is to "do nothing"?

"Trump 2.0" is subjecting Wall Street macro traders to an unprecedented chaotic baptism.

Trump's return to the White House has brought unprecedented uncertainty to the market. From the "on and off" trade tariffs to the rapidly changing diplomatic relations, and the flip-flopping of tax policies, every shift in policy signals has hit traders' established strategies like a heavy punch.

This week, Trump was furious over the mockery of the "TACO" trade, while a legal ruling threatened his core tariff policies, leading to market concerns about retaliatory measures. However, strong corporate earnings data and bets on economic resilience ultimately warmed risk appetite, and investors were not deterred by Trump's tough stance.

This "roller coaster" market reaction highlights a harsh reality: the traditional macro investment script has completely failed.

Priya Misra, a portfolio manager at JP Morgan Asset Management, commented:

"Macro trading has never been simple, but now it is incredibly difficult. You can bet on trends, but you must absolutely avoid being repeatedly hit by the market." Macro funds are facing a historic Waterloo.

Market Trends Diverge, Traders "Can't Keep Up, Can't Escape"

HFR data shows that the HFRX Macro/CTA Index has fallen 4.3% year-to-date as of Wednesday, marking the worst start since records began in 2004. Macro traders, including trend-following quantitative traders, futures speculators, and fund managers trying to stay ahead of data changes, are troubled by these rapidly changing market themes.

In stark contrast, the S&P 500 Index rose nearly 2% this week, with a cumulative increase of 6% in May, achieving the best monthly performance since the end of 2023.

"Can't keep up, can't escape" has become the true portrayal of current macro traders. James Athey, a portfolio manager at Marlborough Investment Management, stated:

"Filtering out noise and capturing signals has become exceptionally difficult. Many systematic strategies may be struggling, forced to de-risk when the market falls, but when the market rebounds, they find themselves underweight and miss the recovery opportunity."

Defensive Strategies Backfire

The market performance in May further confirms the failure of defensive strategies.

During the market turmoil in April, many investors opted for value stocks, put options, fixed-income hedging tools, and trades linked to "stagflation" in an attempt to hedge risks. However, these strategies faced a rare backlash this month.

First, U.S. Treasury prices plummeted, exacerbating concerns about the sustainability of U.S. debt; the gap between the ETF tracking long-term bonds (TLT) and the S&P 500 reached its largest since 2022; defensive stocks lagged cyclical stocks by 10 percentage points, marking the worst performance since the bull market began in 2009.

Even more lamentable, popular tools linked to volatility were not spared. The two largest Cboe Volatility Index (VIX) related ETFs both fell at least 25% this month, which is undoubtedly a disaster for investors who flocked to buy these protective funds this year Even the highly sought-after buffered ETFs, such as FT Vest Laddered Buffer ETF (BUFR) and JP Morgan Equity Premium Income ETF (JEPI), have failed to outperform the market, turning the high expectations of income-focused investors into bubbles.

The Best Strategy is "Do Nothing"

While institutional investors are in a bind, retail investors have unexpectedly become the "winners" in this chaos.

Data shows that at the market low in April, retail investors bought in at a record pace, with $10 billion flowing into retail-favored targets like Vanguard S&P 500 ETF (VOO) since May. Since Trump's election day, the S&P 500 index has risen 2% overall, but this figure masks extreme volatility—missing the worst five days would yield over 20% returns; missing the best five days would result in a 16% loss.

This extreme market timing challenge has made many investors realize that rather than exhausting themselves predicting Trump's next move, it is better to watch and wait.

Ed Al-Hussainy, interest rate strategist at Columbia Threadneedle, succinctly stated:

"The biggest mistake traders make is underestimating the economy's inherent resilience."

He quoted a military maxim—"slow is smooth, and smooth is fast"—to remind his peers that in such a market, aggressive actions often backfire.

Risk Warning and Disclaimer

The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at one's own risk