The returns from trend following are associated with the business cycle. See "Time Series Momentum and Macroeconomic Risk ". While returns are positive in both recession and expansion periods, profits are higher in expansions. At first this result seems odd, the key narrative for trend-following is that it does well during equity crises. However, equity crises are not always associated or mirror the business cycle. Timing for describe trend condition is critical.
The first table shows that expansions are better for trends whether based on NBER cycle or GDP data. The second chart looks at trend performance based on key macro factors. The results are suggestive that term premium is important while default rates are not strong for the more recent period.
Returns are associated with economic risk factors and interestingly, time series momentum has higher returns when economic uncertainty is lower. Again, this may seem odd on first pass. More uncertainty means less trend returns; however, the story may make sense if you believe uncertainty creates noise and thus makes it harder to find a trend. Nonetheless, since uncertainty is just based on being above or below the mean, it is a weak conditional test.
Focusing on macro factors is still an important area of research to determine of trend following can be conditioned on the environment.
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