In April, the Altus Long Short Momentum Fund Founder’s Share class generated a net returned of -0.51% for February, compared to a -.80% decline for the S&P 500.
Volatility dominated equity behavior this month with the S&P 500 swinging greater then 7% intraday, on multiple occasions. Tariff uncertainty and monetary policy dictated the narrative, with negative news inciting a chain reaction of leverage unwinding and retail exposure flipping that led to the S&P 500’s 11% drawdown in 3 days erasing roughly $5 trillion in market value. This put prices into pressure-cooker territory for mean reversion, and once again, we waited for our grey goose to squeeze the shorts. This time, it was President Trump’s tweet: “THIS IS A GREAT TIME TO BUY!!! DJT”. Hours later a pause on tariffs was released, and the market rallied 9.5%.
This, along with more positive tariff news, propelled markets into a period of upward momentum, reversing nearly the entire loss experienced in the first half of April.
Key Macro Events in April
Tariff Volatility Escalates
The defining macro event in April was the re-escalation of U.S. trade tensions. On April 2, President Trump unveiled a sweeping round of tariffs targeting over $300 billion in Chinese imports, citing national security and trade imbalances. The announcement blindsided markets and triggered an aggressive unwind in growth-oriented positions. The S&P 500 breached its 200-day moving average for the first time in over five months, marking a key technical breakdown that accelerated systematic selling. Though headlines walked back the severity of the tariffs later in the month, the damage to investor sentiment had already been done. The administration’s “quiet mode” approach—offering little follow-up communication—exacerbated uncertainty and left markets adrift.
Liquidity Vacuum and Basis Trade Stress
Alongside equity volatility, Treasury markets experienced dislocations tied to the unwind of a crowded basis trade. Swap spreads collapsed across the curve as managed funds and dealers were forced to exit positions en masse, creating a vacuum of liquidity. At one point, top-of-book liquidity in the S&P 500 dropped below $1.5 million—its lowest in history—according to Goldman Sachs. These dynamics stressed market plumbing and contributed to multi-asset disorder, with both equities and Treasuries selling off in tandem, an unusual but telling signal of systemic stress.
Technical Market Structure
Historic Deleveraging
April’s selloff triggered one of the most aggressive risk reductions in over a decade. In the 10-day stretch between April 1 and April 10, net leverage fell by the most since September 2022, while gross leverage remained historically elevated. This created a highly imbalanced positioning landscape: managers slashed longs but maintained structural shorts. The resulting pressure culminated in a massive, short-covering rally on April 10—ranked by Goldman Sachs as the fourth largest in the past 15 years. These flows were not driven by conviction, but by exhaustion and forced de-grossing, contributing to sharp intraday reversals and elevated volatility.
Sentiment and Positioning at Extreme Lows
Investor sentiment hit deeply bearish levels. The Morgan Stanley Global Risk Demand Index fell to -2.7, approaching its average trough over the last decade. SPX put volumes surged to their third-highest session on record, and QQQ put volumes hit all-time highs. Meanwhile, indicators like RSI for major indices and mega-cap tech stocks (e.g., NDX: 32, TSLA: 26) signaled heavily oversold conditions. This confluence of compressed positioning and panic hedging suggested that much of the downside positioning was already expressed—a potential setup for a violent squeeze higher.
Overview and Outlook
April’s volatility shock was the product of extreme positioning colliding with destabilizing macro headlines. The S&P 500’s 11% drawdown was a great reminder of the unrecognized risk baked into modern passive investing and correlation risk presented in the traditional 60/40 portfolio. Complimenting long-term trend following with short-term risk management allowed ALTUS to cut the S&P 500’s monthly drawdown by 50%, while maintaining a ~4% lead to the upside. We see a market that will be led by alternative and active management and expect more volatility to come.
