Why the Trump Trade Is Collapsing: Inflation and the Iran War
The Trump Trade has suffered a severe reversal in the US stock market as a conflict with Iran drives up energy prices, inflation expectations, and interest rates, according to Ned Davis Research. The Ned Davis Research Trump Trade Index, tracking a dozen exchange-traded funds focused on homebuilding, defense, and manufacturing re-shoring, has slumped about 16% since May after outperforming the S&P 500 earlier in the year.
How Geopolitical Shocks and Inflation Clobbered Cyclical Stocks
Amateur and professional traders initially rushed into trades betting on the economic policy agenda of Donald Trump’s second term, generating double-digit percentage gains through the first three months of the year. Funds like the VanEck Rare Earth and Strategic Metals ETF, the Global X Uranium ETF, and the Global X Defense Tech ETF surged at least 20% at various points during the first quarter. Momentum has since reversed entirely. According to Ned Davis Research, the breakdown stems directly from the US conflict with Iran, which triggered aggressive spikes in oil prices and broader inflation pressures.
“All this is tied to the Iran war and inflation,” said Pat Tschosik, chief thematic strategist at Ned Davis Research. “Let’s just go three months without some sort of inflation shock, right? Between some sort of tariff, or war, or supply chain disruption, could we just go three months without some sort of supply shock?”
The resulting macroeconomic friction punished asset classes tied closely to the domestic business cycle. Matt Gertken, chief geopolitical strategist at BCA Research Inc., noted that investors who backed artificial intelligence themes decisively outperformed those who positioned portfolios around traditional cyclical sectors, heavy industry, and working-class consumption.
Capital Flight and Fund Flows Across Trump-Themed ETFs
Investor sentiment has shifted from aggressive accumulation to steady liquidation. The Truth Social God Bless America ETF, trading under the ticker YALL, has recorded continuous monthly outflows since the onset of the Iran war. The fund provides direct exposure to energy, industrial, and financial equities, yet it has dropped more than 4% for the year while the broader S&P 500 climbed approximately 8%. Data from market filings confirms that YALL holds no shares in Trump Media & Technology Group Corp., which has traded down 35% year-to-date despite a July rally.
Not every thematic fund is submerged. The Point Bridge America First ETF, trading under the ticker MAGA, experienced shallower drawdowns than the broader market during the initial onset of the Iran conflict in March and remains positive for the year. Hal Lambert, founder of Point Bridge Capital, pointed out that the overweight position in energy equities has allowed the fund to track the S&P 500 closely, buffering the portfolio against near-term failures in manufacturing re-shoring plays.
Policy Uncertainty and the Section 338 Tariff Implementation
Market participants also face mounting difficulties parsing White House execution strategies. Rather than relying on predictable legislative paths, stock investors are forced to react to rapidly shifting executive orders and social media announcements. Michael O’Rourke, chief market strategist at JonesTrading Institutional Services, observed that participants are actively tuning out policy announcements because handicapping them has become nearly impossible.
Adding to the uncertainty, the Trump administration announced plans this week to replace the expired temporary 10% global import tax with targeted actions under Section 338 of the Tariff Act of 1930. The administration also slapped 50% tariffs on Canadian products including beer, wine, paper, and hockey sticks. TD Cowen analyst Chris Krueger noted in a July 20 report that China and Europe stand as the most likely candidates for subsequent Section 338 duties.
Corporate margin expansion faces immediate threats from these trade actions. “Now is really not the time to be pressing this” while inflation and oil prices remain elevated, said Mark Malek, chief investment officer at Muriel Siebert. He added that the equity market already consumed its metaphorical get-out-of-jail card by rallying despite the closure of the Strait of Hormuz.
As institutional portfolios grapple with shifting monetary conditions and complex regulatory hurdles, firms frequently turn to specialized advisory entities. Meanwhile, long-term proponents of the administration’s fiscal goals maintain that industrial rebuilding requires patience. Point Bridge Capital’s Lambert emphasizes that physical infrastructure takes years to mature: “It’s a long-term play. You don’t build a manufacturing facility overnight.”