As Q1 earnings season starts trailing off, the liquidity drain of seasonality de-risking into the summer is contributing to the near-term headwinds.

We have heard anecdotal stories of the markets starting to behave a bit erratically over the past several trading sessions.

Given “AI job displacement” fears have not yet been clearly reflected in the US employment numbers, one must keep an open mind about the impact of AI on the white-collar labor force of the future.

The resolution of this trend is quite impactful as labor disruptions remain one of the greatest fears of AI, cementing the secular thesis around medium term forecasts of deflation and economic slowdown ensuring an eventual slashing of interest rates back to the zero line.

The snap back in high velocity risk seeking flows is following similar post market shock episodes like the pandemic in March 2020, SVB March 2024 and Liberation Day April 2025.

Market violence and turbulence to the upside and downside in rapid speed has become the ongoing dynamic in price action.

If it feels like an oppressive version of Groundhog Day in the markets for the past 466 days, then you are not imagining things. The statistics demonstrate that Trump's second term in office has unleashed nothing short of chaos on day-to-day price action.

The remarkable re-engagement with risk taking in the wake of the temporary cease fire has created both opportunities and challenges for hedge funds.

The initial snapback helped March HF losses recover, but there have been some dangerous short squeeze trends and headline risks remain. Although, investor reaction to Iran developments has become more subdued.

As hedge fund net exposures started to recede in March, equities staged a shocking recovery.

Strangely the slow bleed in equities during March witnessed an opposite pattern with the SPX “down on the stairs and up on the escalator,” as risk was clearly to the upside a few weeks ago.

Commodities are outperforming YTD and on the flip-side of the Q1 leaderboard were growth stocks. In the middle we find emerging markets, who pulled ahead early in the quarter driven by a weak US dollar and growing interest among investors to diversify globally.

Month-end featured a breathtaking relief rally that started to lose momentum into the long holiday weekend, but US equity indices finished the shortened week positive for the first time since February.

Headline driven market reversals are taking their toll on investor sentiment and tactical trading strategy PNLs.

The varied performance across sub-strategies, styles, regions and sectors during this stress period highlights the real-time benefits of hedge fund portfolio diversification. Many hedge fund areas, especially Global Macro, are underperforming MTD amid recent crisis-driven market turmoil.

Deutsche Bank analysts put together some interesting analysis this week on war’s impact on the S&P 500. Good news, according to their analysis of 30 past war events, the S&P 500 bottoms T+15 days post war onset at just around the -4% level where we stand today.

While historical statistics can be comforting, every situation is different and clearly there are many open-ended issues at play here before the all clear flag is waived. In the meantime, hedge fund PMs are opting on de-risking as the best path forward as many typical risk-off hedges (bonds, precious metals, equity puts) are proving elusive.