July proved a challenging month for trend-following strategies, as a series of abrupt reversals across financial markets disrupted established trends. CTA managers faced losses across commodities, currencies, and equity indices, with some markets suffering sharp trend reversals while others produced the kind of whipsaw conditions that are particularly difficult for systematic strategies. Performance was broadly negative across managers and sub-strategies in the NHX CTA Index.
Last month, time-series momentum (TSMOM), as measured by RPM’s Market Divergence Index (MDI), slumped to multi-month lows as different types of trend reversals swept through financial markets globally. In equities, stocks initially continued to rally following weaker-than-expected U.S. nonfarm payrolls, in a classic “bad news is good news” scenario, before reversing sharply amid a major selloff in chip stocks that undermined investor confidence in the AI trade and as the U.S. and Iran resumed hostilities.
In fixed income, bond yields continued to rise on the back of robust economic data. However, the move became less convincing as favorable inflation surprises emerged and renewed fighting between the U.S. and Iran added to uncertainty. In foreign exchange, the U.S. dollar reversed course after U.S. inflation came in below expectations, easing concerns about imminent interest-rate hikes. Toward month-end, the Japanese yen jumped by as much as 3 percent against the dollar amid interventions by Japan’s Ministry of Finance and the U.S. Treasury Department.
Commodities were similarly volatile. Crude oil futures posted double-digit gains as the U.S. expanded its military strikes against Iranian targets and Iran retaliated against neighboring Gulf countries. Toward the end of the month, however, prices tumbled again as the adversaries temporarily paused strikes over the Strait of Hormuz. Global wheat markets also underwent a sharp reversal, rallying strongly after the USDA’s WASDE report significantly lowered its forecast for 2026 U.S. winter wheat production. The rally was further supported by escalating hostilities between Ukraine and Russia, as missile and drone attacks targeted vessels in the Black Sea and the Sea of Azov, a region crucial to global grain exports.
Sub-Strategies and Constituents in the NHX CTA Index
Most Nordic trend-following managers ended the month in negative territory. Estlander & Partners Alpha Trend, Lynx, Mandatum Managed Futures Fund, and SEB Asset Selection all declined, with losses driven by currencies, stocks, and soft commodities, respectively. Shorter-term trading strategy Calculo Altus, however, managed to generate a positive return.
Most non-trend-following managers in the NHX CTA Index also posted negative returns. Both short-term trading vehicles, Epoque and Lynx Constellation, were slightly down, mainly due to losses in currencies and commodities. Among macro strategies, Estlander & Partners Freedom and Volt Diversified Alpha both ended the month in negative territory, while Lynx Systematic Macro was able to generate strong returns. Multi-manager program RPM Evolving CTA Fund had a particularly difficult month, reflecting losses among its underlying managers in soft commodities.
Outlook
While the global macroeconomic outlook is currently quite positive, renewed hostilities between the U.S. and Iran, and escalating fighting between Ukraine and Russia, are expected to maintain inflationary pressure on commodity markets. This could make further interest-rate cuts this year less likely. At the same time, the AI trade appears to be slowly losing momentum, although it remains too early to determine whether the recent weakness marks a broader end to the bullish trend.
