The Trump Trade's FOMO Is Cracking-Can Markets Dodge a 16% FUD Flush?

The Trump Trade has cooled, but the policy narrative has not fully broken

The Trump Trade has slumped about 16% since May. That reversal matters because the strategy was never just about headline winners; it was built on the idea that White House policy would flow through cleanly into earnings and capital cycles. Ned Davis Research's gauge tracks homebuilding, defense spending and re-shoring-related manufacturing, so this pullback reflects more than a minor rerating. It shows how quickly a policy-driven crowd trade can weaken when macro conditions change.

The reversal has been driven by a familiar chain reaction. After the US conflict with Iran, energy prices, inflation expectations, interest rates and the value of the US dollar moved higher. That backdrop has hurt the trade even as believers still point to pockets of resilience, such as the Point Bridge America First ETF, which has remained higher for the year. Still, several ETFs in the gauge are now trading lower for the year, which suggests patience is wearing thin.

Why investors keep returning to the same policy bet

The earlier slide did not kill the narrative. It exposed what has always made the trade attractive-and risky. Investors are still trading expected policy relief, not settled fundamentals. Even after macro shocks disrupted the setup, the market kept searching for the next policy breakthrough Trump Trade is in tatters as investors have an increasingly difficult time parsing the White House's policy strategies.

Deregulation signals still matter more than delivery

The main draw is simple: the administration keeps signaling that trade leverage and executive pressure can force regulatory rollbacks. Last month, the White House barred EU officials from entering the U.S. in a move framed as retaliation for Europe's "censorship" of U.S. tech platforms. Critics described that move as part of a broader campaign to pressure the EU over the Digital Markets Act and Digital Services Act. Whether that pressure produces lasting change is still unclear, but the market responds to the signal itself because it points toward lighter regulation.

That story can survive even when execution looks messy. For traders, policy uncertainty can look like opportunity: if Washington keeps pushing against heavy regulation, the upside case becomes "what if more rules get scaled back?" That keeps the narrative alive even when the underlying trade is under pressure.

How long can the Trump Trade stay alive?

The answer depends less on ideology than on macro feedback loops. As Ned Davis Research noted, the breakdown has been tied largely to inflation-sensitive spillovers from the Iran conflict. If those pressures cool, the trade can rebuild support. If tariffs, war or supply-chain disruptions keep lifting inflation expectations and rates, the group remains vulnerable because its case has depended more on expectations than on confirmed outcomes.