Why Patience Matters During Market Stress

All good things come to those who wait. After the dramatic volatility driven by President Trump’s on-again-off-again tariff policies, trend followers may well feel unsettled. Yet historical crises show that staying invested is required to reap the rewards.

In this article, we analyse historical patterns across major market dislocations, in the context of today’s events. In the first section, we examine what is happening now, and why. In the second, we look at recurring historical patterns during equity crises, and find that trend following often wobbles before delivering on its crisis alpha credentials.

Part one: What is happening in 2025?

To say market uncertainty is high is an understatement. By market close on 11 April, the S&P 500 Index had fallen 8.1% over the year, NASDAQ 10.0% and crude oil 12.3%. There have been few places to hide, with historic ‘safe havens’ such as the dollar and developed government bonds failing to deliver returns to offset April’s equity rout. For traditional multi-asset investors, this has been a painful ride so far, as shown in Figure 1.

Figure 1. Performance year to date, at market close on 11 April 2025

Source: Man Group database, Bloomberg, SocGen. Market sets for illustration only. Markets represented by: Crude oil: WTI. Trend-following: Société Générale Trend Index, US dollar: DXY index.

Trend-following has historically performed positively during large market moves, so why is it seemingly not working in 2025?

Correction or crisis?

Perhaps a better question would be: why isn’t trend following working yet? At the onset of a downturn, investors often look expectantly toward trend-following strategies, only to find themselves asking: "Where is my convexity?" This natural question highlights an important nuance in how trend strategies respond to market dislocations.

As we outlined in our previous research (Trend Following: Loading the Dice), trend-following strategies are frequently characterised as being 'long volatility'. While this description holds merit when evaluated over extended timeframes of weeks or months, the relationship becomes more complex during sharp, short-lived volatility spikes.

Figure 2. S&P 500 drawdown dates and length versus trend-following returns

Source: Man Group database, Bloomberg. Using crisis dates from the ‘Best of Strategies for the Worst of Times'. Trend-following represented as SG Trend index. Chart is shown from Jan 2000 – present, based on inception of SG Trend index being in January 2000. The size of each dot relates to the magnitude of trend-following returns.

The critical distinction lies in the nature of the selloff, and whether it is a correction or a crisis. As seen in Figure 2, trend strategies have historically delivered robust performance during sustained market drawdowns.¹ However, their behaviour during compressed, highly volatile episodes more closely resembles a roll of the dice – heavily dependent on positioning at the moment volatility erupts.

Full-blown market crises rarely manifest as clean, straight-line moves. Instead, they typically develop through distinct phases marked by significant whipsawing before a clear direction emerges. These violent reversals can temporarily wrong-foot even the most robust trend models, although these initial periods of heightened volatility serve as a recalibration mechanism, where market participants assimilate new information into prices. We observe this in Figure 3 below, which shows that prior to the official start (high watermark) of each crisis, equities had already shown signs of whipsawing.

Figure 3. Performance of the S&P 500 in the three months prior and three months after the ‘crisis start’ date of the dot-com bubble, GFC and 2022 inflation episode

Source: Man Group database, Bloomberg. Date range: Jan 2000 – Dec 2022.

Part two: Recurring patterns

While each crisis unfolds differently, we observe recurring patterns in how trend strategies adapt and eventually deliver crisis alpha:

1. Initial shock and position misalignment

When market dislocations first emerge, trend models typically carry legacy positions calibrated to the pre-crisis environment. This initial misalignment can result in losses as rapid price movements contradict established trends. Performance during this early phase depends heavily on pre-existing positions and can vary significantly across different crisis periods. What remains consistent, however, is that trend models require time to adjust to the new market reality.

2. Adaptive recalibration

As a crisis develops, trend models begin their adaptation process — de-risking where appropriate and identifying emerging trends. This recalibration period often includes both gains and losses as positions are adjusted to align with evolving market directions. The speed of adaptation and robust risk management become critical during this phase. Recent examples include the tactical repositioning in US 10-year Treasury futures over the past week, where trend-following breakout models quickly identified and capitalised on new directional moves.

3. Delivering crisis alpha

Following this period of recalibration, trend-following strategies eventually align with the sustained market moves that typically characterise crises, sizing up positions accordingly and help deliver the crisis alpha that investors desire. This phase has historically coincided with stronger returns as strategies leverage clear directional moves across multiple asset classes.

Indeed, looking at major equity market dislocations of the past several decades, from the dot-com bubble, to the GFC, to 2022’s inflation spike, we observe initial sharp moves; frequently followed by counter-trend rallies or reversals before markets go into an all-in capitulation; and eventual recovery. We focus on these examples in more detail below.

The dot-com experience (September 2000 – October 2002)

During the dot-com bubble, trend-following strategies (as proxied by the Société Générale Trend Index) initially struggled to find their footing as equities whipsawed, losing approximately 10% before finding their stride. Once models recalibrated, investors who maintained their allocations were eventually rewarded with returns exceeding 40%, as the crisis fully developed.

Notably, even on the path to these impressive gains, trend followers endured another 20% drawdown, illustrating that the journey to crisis alpha is rarely linear. This pattern underscores the importance of patience and conviction when allocating to trend strategies during market stress.

Figure 4. Performance of the Société Générale Trend Index and S&P 500 in the three months prior and during the dot-com bubble

Source: Man Group database, Bloomberg. Date range: Jun 2000 – Oct 2002.

Figure 5. Drawdown of the Société Générale Trend Index in the three months prior and during the dot-com bubble

Source: Man Group database, Bloomberg. Date range: Jun 2000 – Oct 2002.

The GFC pattern (October 2007 – March 2009)

The onset of the GFC also presented a similar pattern. The S&P 500 Index suffered a 9% drawdown within one month during the summer of 2007 before rebounding to a fresh high in October 2007. As illustrated in the chart below, trend strategies initially failed to deliver convexity, suffering a drawdown of nearly 17%. However, trend strategies had already adapted, with defensive positions in place to deliver crisis alpha once the S&P entered into a more prolonged bear market, rewarding those with the patience to hold the strategy.

Figure 6. Performance of the Société Générale Trend Index and S&P 500 in the three months prior and during the GFC crisis

Source: Man Group database, Bloomberg. Date range: Jul 2007 – Dec 2009.

Figure 7. Drawdown of the Société Générale Trend Index in the three months prior and during the GFC

Source: Man Group database, Bloomberg. Date range: Jul 2007 – Dec 2009.

The inflation episode (January 2022 – October 2022)

Beyond the two growth-driven crises, we can also draw parallels to inflationary crises, specifically focusing on the most recent episode. The S&P 500 experienced a fairly sharp ~4% drawdown in November 2021, triggering a contemporaneous ~6% reversal for trend-following. However, risk in the strategy was subsequently cut and positions began to adapt, with trend-following experiencing more muted performance during this recalibration phase. Once equities resumed their decline in early 2022, the continuous upside surprises in inflation led to the formation of trends, and trend-following was able to benefit.

It is worth highlighting that, much like in the dot-com bubble, the path to crisis alpha was not linear. Trend-following strategies endured a mini-correction in June-July 2022, prior to delivering further gains as the equity sell off deepened from August onwards.

Figure 8. Performance of the Société Générale Trend Index and S&P 500 in the three months prior and during the inflation episode of 2022

Source: Man Group database, Bloomberg. Date range: Oct 2021 – Oct 2022.

Figure 9. Drawdown of the Société Générale Trend Index in the three months prior and during the inflation episode of 2022

Source: Man Group database, Bloomberg. Date range: Oct 2021 – Oct 2022.

Bringing this all together in Figure 10, the common thread across different crisis periods is that patience was rewarded. While investors must endure periods of drawdown and volatility along the way, historical evidence suggests that trend following ultimately can deliver meaningful crisis protection for those willing to maintain their allocations through the full cycle. Each crisis may follow a unique trajectory, but the pattern of initial pain followed by eventual gain remains remarkably consistent.

Figure 10. The Société Générale Trend Index versus the S&P 500 during major crises (t=0, three months before the start of the crisis)

Source: Man Group database, Bloomberg. Date range: Jan 2000 - Oct 2022.

Conclusion: Laws of unintended consequences

Current market moves are testament to the fact that we are currently witnessing a profound transformation that is reshaping the global economic order, driven by the US administration’s sweeping policies. History suggests that policy shifts tend to have lasting unintended and unexpected consequences that ripple through markets as participants take time to digest their impact. If the current level of uncertainty and volatility – from both a price and policy perspective – persists, there is an elevated chance of disruption. Trend-following has so far borne the brunt of the initial market shock and misalignment, but positions have undergone a period of adaptive recalibration. As per the Société Générale Trend indicator, trend-following is currently positioned towards a more defensive stance – short equities, long bonds and short energies, for example. Perhaps one may take the view that the initial drawdown can be regarded as a cheapening of the entry point for this crisis alpha strategy, in contrast to traditional defensive strategies, such as puts.

While we make no claims as to be able to predict the future path of returns, if markets do find their way into a more protracted period of weakness, the prevailing positions may be well-positioned to deliver crisis alpha. As history has repeatedly shown, trend can indeed be a friend in times of market stress – but it's a friend that tends to show up just before the real party begins.

1. Past performance does not guarantee future results.

With special thanks to Eva Sanchez Martin and Adi Mackic for their contributions to this article.

Appendix 1: Crisis dates