July proved to be a classic reversal from less risk appetite to risk-on behavior. Global equities, which were weak in June, reversed on the expectations of stronger growth and earnings. This was bad news for trend-followers positioned for further market declines. The switch in risk appetite caused bonds to move lower. The strong growth, higher inflation, expected larger supplies, and expectations for continued Fed QT placed added pressure on Treasuries.  Credit markets moved in-line with equities. The range bound currencies helped international assets but did not allow for trading gains. Commodities were mixed with energy prices moving lower and grains seeing some buying pressure after large declines last month. All of these reversals did not help intermediate trend traders.

While it is a consolation that core portfolio holding have been positive this year, investors are expecting less pain from this defensive strategy. A long history suggests that the average return for this style will not see long periods of stress; however, any change in return patterns will be predicated by an economic dislocation which has yet to occur.