Global long/short hedge funds missed out on much of a dramatic rally in U.S. stocks on Wednesday, despite a major announcement from President Donald Trump that temporarily paused some tariffs for 90 days.
On the day, these funds saw a modest gain of 0.98%, while the S&P 500 surged 9.5%, as reported by Morgan Stanley. U.S. hedge funds fared slightly better, with a 2.28% increase, but still underperformed the index.
Trump’s sudden reversal on tariffs, made after a day of turbulence in U.S. Treasuries, sparked the rally. Investors had been worried that the new trade policy could push the U.S. economy into a recession. The announcement sent stocks soaring and caused Treasury yields to ease off their highs.
The rally took many by surprise, especially hedge funds that had increased short positions, betting that stock prices would fall.
Last week, hedge funds faced their largest net selling in nearly 15 years, according to Goldman Sachs, and turned their most bearish since 2011.
With a reduced number of long positions, hedge funds didn’t fully capitalize on the surge. “Some of the activity on Wednesday was due to hedge funds covering their shorts after Trump’s 90-day pause announcement,” said Jon Caplis, CEO of PivotalPath, a hedge fund research firm.
Despite missing out on this rally, long/short hedge funds have outperformed the S&P 500 in 2025. As of April 10, global funds were down 3.14%, while U.S. funds had dropped 4.07%. In contrast, the S&P 500 had fallen 6.9% over the same period.
Morgan Stanley also reported that portfolio managers continued to cut leverage in their portfolios. Hedge fund managers, uncertain about the direction of tariffs, have been trimming positions to lower risk.
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