From Panic to Positioning: Will flows or news drive the tape?
Markets have staged a rebound since their bottom on April 8th, with the S&P 500 up 5.37% since then to 5,282.70, as of this writing. This rebound is in despite of many ongoing challenges—including uncertainty around whether tariffs are inflationary or not, rising interest rates, and elevated geopolitical risk.1 Early market jitters eased after President Trump announced a 90-day delay on new tariffs for most countries (excluding China, which was hit with a steep 125% tariff), offering some short-term relief to investors.
Volatility remains high, though off its peak. The Volatility Index (VIX) touched 52.3 before easing to just under 30 as of this writing. This still reflects considerable investor caution. Bond yields which had risen, with the 10-year Treasury reaching 4.48% have relented somewhat but remain a cause of concern. With the Federal Open Market Committee (FOMC) meeting in May, investors need to recognize that the correlation of bonds and stocks is far from stable and negative if the Federal Reserve (FED) chooses to give a hawkish message. Adding complexity, there has also been public disagreement between the President and Chair Powell about the need for more immediate interest rate eases. Meanwhile, gold and Bitcoin surged, signaling continued demand for perceived uncorrelated or non-traditional assets.
Investor flows offer some insight into market behavior. It was estimated hedge funds increased their gross exposure by roughly $40 billion in Q1 2025—one of the largest quarterly expansions in over a decade—while mutual fund investors largely stayed on the sidelines.2 Once the tariffs were announced, hedge funds rapidly deleveraged.3 With funds under pressure to put money to work, we expect a rebalancing of long/short portfolios in the coming weeks. This could mean some of the sharpest recent stock gains, especially in highly shorted names, may not hold as funds reset positions. We mention this to remind investors that often market positioning and technicals play a dominant role in the market’s path.
That said, elevated risks remain. Tariff uncertainty, particularly for the semiconductor industry, is still front and center, and the Fed continues to strike a more cautious tone. President Trump could act swiftly on semiconductor-related tariffs, perhaps even before the formal investigation process concludes. At the same time, important tech-related and earnings events—such as NVIDIA’s and Taiwan Semiconductor’s earnings (which came through opposingly), NVIDIA’s new chip launches, and Chinese chip export sanctions—could add to market volatility, especially given how central semiconductors are to the broader “AI and innovation” story driving investor enthusiasm.
For advisors and their clients navigating this environment, systematic equity strategies like Easterly’s Hedged Equity Fund (JDIEX) can offer a compelling approach—designed to participate in upside while defensively managing downside risks. The fund’s rules-based, volatility-aware methodology helps it adapt to changing conditions without relying on market timing.
Key Takeaways for Advisors:
- Elevated Risks Persist: Despite last week’s rally, markets remain on edge amid tariff uncertainty and mixed signals from the Fed on future rate cuts.
- Watch Tech and Semis: Upcoming developments in semiconductors—both political and corporate—could act as important catalysts for broader market sentiment because of how high correlations have been in the market.
- Flows Suggest Repositioning Ahead: Hedge funds are beginning to reset their portfolios, which may lead to reversals in some of the most extended names.
- Fixed Income: The diversification value of fixed income also remains a question mark with the various forces affecting FED policy and the yield curve.
- Easterly’s Hedged Equity Fund (JDIEX) can offer disciplined exposure: The fund’s systematic and more flexibly active approach provides equity participation with relevant built-in risk controls—helping clients stay invested without overexposure to short-term shocks. The value of a differentiated pattern of correlation can be beneficial in these volatile times.
Sources
1 Bloomberg Data
2 Goldman Sachs, Hedge Fund Trend Monitor, 20 Feb 2025 and Bloomberg Data
3 Reuters, Hedge funds, ETFs dump over $40 Billion in stocks after Trump tariff shock, 4 Apr 2025.
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Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund. This and other important information about the Fund is contained in the prospectus which should be read carefully before investing, and can be obtained by visiting funds.easterlyam.com or by calling 888-814-8180.
The Easterly funds are distributed by Easterly Securities LLC, member FINRA/SIPC. Easterly Investment Partners LLC is an affiliate of Easterly Securities LLC. Orange Investment Advisers, LLC and EAB Investment Group, LLC are not affiliated with Easterly Securities LLC.
Easterly Investment Partners LLC is the investment adviser to the Easterly mutual funds. Easterly Snow, Easterly Murphy, Easterly Ranger and Easterly ROC Municipals are investment teams of Easterly Investment Partners LLC, an SEC-registered investment adviser. EAB Investment Group LLC (d/b/a Easterly EAB), Orange Investment Advisors LLC (d/b/a Easterly Orange), Harrison Street Advisors and Lateral Investment Management are separate SEC-registered investment advisers that are strategic partners of Easterly. Each investment adviser’s Form ADV is available at www.sec.gov. Registration does not imply and should not be interpreted to imply any particular level of skill or expertise.
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IMPORTANT FUND RISK
There is no assurance that the Fund will achieve its investment objective. The Fund share price will fluctuate with changes in the market value of its Fund investments. Mutual Funds involve risk including possible loss of principal. Leveraging investments, by purchasing securities with borrowed money, is a speculative technique that increases investment risk while increasing investment opportunity. Derivatives may be volatile and some derivatives have the potential for loss that is greater than the Fund’s initial investment. If the Fund sells a put option, there is risk that the Fund may be required to buy the underlying investment at a disadvantageous price. If the Fund sells a call option, there is risk that the Fund may be required to sell the underlying investment at a disadvantageous price. Shares of ETF share many of the same risks as direct investments in common stocks or bonds. Because a large percentage of the Fund’s assets may be invested in a limited number of issuers, a change in the value of one or a few issuers’ securities will affect the value of the Fund more than would occur in a diversified fund.
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