Donald Trump’s return to the White House in January 2025 sent a wave of conviction through markets. Professional and retail traders alike rushed to position in stocks that were expected to win big from his agenda on homebuilding, defense spending, and reshoring manufacturing. For a few months, that bet paid off. Today, it’s falling apart.
The Trump Trade Index has dropped sharply since May
Ned Davis Research’s Trump Trade Index—a basket of a dozen exchange-traded funds that track sectors tied to the administration’s priorities—has slumped roughly 16% from its peak in May. The S&P 500, by contrast, has held up far better in the same period. Several ETFs within the index are now trading in the red for the calendar year.
Why the Iran conflict shattered the trade
The single biggest factor behind the reversal is the escalation of tensions between the United States and Iran. That conflict has pushed global energy prices higher—directly hitting homebuilding stocks through rising material costs, and defense stocks through uncertainty over budget allocations. More important, it has reignited inflation fears that had been cooling.
From market darling to cautionary tale
At the start of 2025, the Trump Trade was one of the hottest strategies on Wall Street. The index smashed the broader market in January and February. But the geopolitical shock in the spring upended the narrative. Rising yields, higher crude oil prices, and sticky inflation have eroded the gains of what was once considered a policy-proof portfolio.
Who is hurt the most by the Trump Trade rout
Amateur investors who piled into thematic ETFs like the iShares U.S. Home Construction ETF (ITB) or the SPDR S&P Aerospace & Defense ETF (XAR) have borne the brunt of the losses. Many retail portfolios that chased the trade are now underwater. Institutional investors, too, are rebalancing away from positions that once seemed safe bets.
What the Ned Davis Research data reveals
According to analysts at Ned Davis Research, the Trump Trade Index’s 16% decline is not just a normal pullback—it reflects a fundamental breakdown in the assumptions that drove the trade: low inflation, steady energy costs, and clear policy direction. All three have reversed sharply since spring.
The deeper story: geopolitics over policy
The rout underscores a painful lesson for thematic investors—no administration can insulate its preferred sectors from global shocks. Despite strong domestic policy support, the White House has limited control over energy prices driven by Middle East instability. The Trump Trade’s collapse shows that foreign policy risks can override domestic economic promises.
Confirmed facts vs what remains unclear
Confirmed: The index is down about 16% since May. Several ETFs are now negative for 2025. The U.S.–Iran conflict is a primary trigger. Unclear: Whether the trade will recover if tensions ease, or if structural inflation will keep it suppressed. Also unclear is whether the administration can take steps to revive these sectors.
How investors can navigate the new landscape
For those still holding Trump Trade positions, experts recommend reviewing exposure to energy-sensitive sectors like homebuilding and manufacturing. Diversifying into less policy-dependent areas—like healthcare or technology—may reduce risk until the geopolitical picture clears. Stop-losses and periodic rebalancing are worth considering.
Risks and balanced view
Not all markets agree that the Trump Trade is dead. Some analysts argue the selloff is overdone and that the administration’s deregulation and tax policies will reassert themselves. However, critics point out that inflation-driven rate cuts are unlikely, which squeezes valuations in rate-sensitive sectors. The trade remains deeply controversial.
Wider trend: thematic investing in a fractured world
The Trump Trade’s failure fits a broader pattern of thematic trades collapsing under geopolitical stress—from the China reopening trade to the ESG boom. Investors are learning that single-thesis portfolios are fragile in a world where shocks are becoming more frequent.
Future outlook for Trump-linked stocks
If U.S.–Iran negotiations make progress, energy prices could soften, giving the trade a lift. But if tensions escalate further, more downside is likely. Markets will also watch the Federal Reserve’s response: any sign of a hawkish pivot will deepen losses. The next few months will determine whether the Trump Trade revives or becomes a permanent warning in market history.
Our Take
The Trump Trade’s implosion is a reminder that no policy agenda is immune to the raw force of geopolitics and inflation. While the administration has delivered on many promises—tariffs, deregulation, defense hikes—the global stage has turned hostile. Investors who bet too heavily on a single outcome are paying the price. The story is not just about stocks; it’s about the limits of presidential power in a connected world.
Frequently Asked Questions
What is the Trump Trade?
The Trump Trade refers to a basket of stocks and ETFs expected to benefit from Donald Trump’s economic policies, including homebuilding, defense, oil, and reshored manufacturing. It gained traction after his 2024 election win.
Why did the Trump Trade lose money?
Rising energy prices and inflation fears linked to the U.S.–Iran conflict eroded the performance of Trump Trade sectors. The Ned Davis Research index fell 16% since May, with several ETFs now negative for the year.
Is the Trump Trade completely dead?
Not necessarily. Some experts believe the selloff is overdone and that policy benefits could re-emerge. However, as long as geopolitical tensions remain high, the trade faces significant headwinds.
What should investors do with Trump Trade ETFs now?
Investors should assess their exposure to energy-sensitive sectors, consider diversification, and use stop-loss protections. Waiting for clearer geopolitical signals before adding to positions is also advisable.
