Following the Trend Following Trend...

The first quarter saw the start of the new US administration. Roughly speaking, from the November election through inauguration day markets seemed to price the pro-growth side of the policy platform, which emphasized deregulation and the extension of tax policy and a business community looking forward to a friendly few years. Equity markets ran to new highs, credit spreads tightened, the USD strengthened, and the continuation of US exceptionalism were themes.
Post inauguration through Liberation Day saw a different picture emerge as markets were forced to take the President seriously and literally. Rather than a make-the-pie bigger approach, we moved to an aggressive zero-sum world and market adjustment. Aggressive use of tariffs seemed to speed run previous trade wars. US equity markets sold off, in part due to fears over the US dominance in cutting edge AI was questioned. Non-US equity markets fared better as Trumps rhetoric seemed to kickstart Europe and China into much need fiscal stimulus. This changing relative growth picture took the shine off the USD somewhat and rallied commodities like copper.
The softer economic data shows meaningful weakness while harder data in the labor market remains strong. How long that lasts will be key to watch over the next few months – markets generally struggle with policy uncertainty and volatility, which the new administration seems to view as a feature rather than a bug in negotiating.

DXY YTD through 4/24/2025

USD weaking
Copper has been volatile, first rallying to multi year highs as importers seemed to cause a front running of imports into the US to beat the likely Section 232 tariffs coming at some point. The spread between US delivery copper and the London market widened substantially. At the end of the quarter and over the start of April, the growth fears took over and we saw volatility the other way, making for choppy trend following price action.

Natural gas markets also saw substantial volatility over the quarter, leading to a loss in the trend following strategy where the fund has been short for the better part of two years, picking up the large downtrend as prices normalized post the spike in 2022 driven by the Russian invasion of Ukraine. In Q1, prices rose quickly as markets began to price more European purchases of LNG from the US due to lower levels of natural gas in storage in Europe.

Fixed income flat despite the moves of the 10-year
Trend following doesn’t say anything about the future, its positions are merely a reflection of the past, the “following” part of trend following.

The real question is whether the previous trends continue? Right now, we have headline driven volatility causing multiple market price reversals.

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