Equity Long/Short strategies are underperforming the MSCI World index. The firm attributes this to persistent buying of overvalued stocks by US retail investors. The note also points to geopolitical risks, particularly crude oil volatility, and high hedge fund exposures as potential catalysts for a market downturn.

This week has featured a cooling of short squeeze pressures in the US and a spike in oil prices after Israel’s strikes on Iran.

Market participants will need to carefully navigate the shifting political and economic landscape, remaining agile and vigilant in their approach to capitalize on emerging opportunities and mitigate potential risks.

US government bond vigilantes are swarming and the latest “BBB” (Big Beautiful Bill) does little to dispel their worries. 

Macro managers continue to believe higher US long-term rates and a weaker dollar will be the ultimate consequences of Trump’s policies.

Quant futures strategies struggled recently due to a combination of technical price reversals as well as a dislocation in typical economic relationships. The rally in the euro versus the US dollar cannot be explained by traditional interest rate differentials.

Global market participants might be slightly jilted by the market volatility. However, the true impact of the US’s approach to global trade negotiations is being felt in the real economy where corporate CEOs are faced with little medium-term visibility and therefore are delaying many business decisions until clarity emerges.

Hedge funds constantly engage in active risk management. A portion of the MTD losses are from hedges established post “Liberation Day” to protect portfolios against future equity market declines.

Adding more tax to foreign imports is forecast by the US presidential administration to help close the gap between spending and revenue.

In summary, the global markets have experienced significant turbulence due to the escalating trade tensions, resulting in a flight to quality in bonds, a decline in equities, and increased volatility in hedge fund performance. The path forward for investors will require a balanced and adaptive approach to navigate the rapidly changing landscape.