Ned Davis Research reports 16% drop in Trump Trade index as political bets unravel

There’s a particular kind of market humiliation reserved for trades built on vibes rather than fundamentals. The Trump Trade, as Wall Street branded it, seemed like a sure thing in late 2024. A dozen ETFs tied to homebuilding, defense, and domestic manufacturing surged past the S&P 500 in the opening months of the year. Then came May. Ned Davis Research’s Trump Trade Index has fallen roughly 16% since May, erasing the outperformance that made the strategy look so clever just a few months earlier. Several of the component ETFs are now trading in negative territory for the year. What’s actually driving the reversal The unwinding isn’t random. Escalating tensions between the US and Iran pushed energy prices higher, which fed back into inflation expectations. Higher inflation means higher interest rates, and higher rates are generally bad news for rate-sensitive sectors like homebuilding, which was one of the core themes in the index. The stronger US dollar that accompanied those moves added another headwind for the reshoring and manufacturing plays that were supposed to benefit from tariff policy. The index originally cast a wide net. Early iterations included Bitcoin and space-re...