Wall Street's ‘smart money’ braced for tariff chaos. It was still caught off guard.

“When Trump was elected, I thought, ‘The crash is about to come,’" said de Langlade, founder of Swiss hedge-fund firm EDL Capital, which gained 6% that day.

What he didn’t fully see coming: Stocks ripping higher Wednesday after Trump delayed most of his so-called reciprocal tariffs. EDL was dinged in the explosive rally, losing 1.4% on the day. The firm remains up more than 25% for the year.

Trump’s tariff plan sparked a market roller coaster for the ages. The S&P 500 erased $5.8 trillion in market value in the days after the president’s “Liberation Day" announcement, before finishing with a gain of $4 trillion Wednesday, its best day since 2008. Treasury bonds, seen as havens in periods of volatility, initially performed as expected when markets started cratering. Then they suddenly—and violently—switched direction, stoking worries about market strain.

Even for hedge-fund managers, regarded as the smart money in markets, the swings have been hard to predict. A group of macro hedge funds—or those that trade big-picture market moves in stocks, bonds, currencies and commodities—profited handsomely when they correctly called the initial market reaction to Trump’s trade policies. But even those prescient funds couldn’t foresee the ripple effects across asset classes in the days that followed.

In an environment where fortunes change frequently and yesterday’s losers can be tomorrow’s winners, hedge-fund traders around the world are glued to their screens, worried that a social-media post or TV appearance could swiftly reverse the direction of markets.

“Every 15 minutes and 20 minutes or so, I’ll wake up and check what’s going on," said Vineer Bhansali, founder of California hedge-fund firm LongTail Alpha, which focuses on strategies that aim to benefit from market turmoil. “These days things move so fast."

Heightened economic and policy uncertainty helped prompt hedge funds to turn more bearish collectively in March. Hedge-fund clients of Goldman Sachs sold stocks last month in the highest volumes, net of purchases, in 12 years. The ratio of bets on asset prices rising to bets on them falling at those clients reached a five-year low in March.

Hedge funds “were looking at some of the rhetoric around tariffs and felt this was going to be more of a negative hit than people were expecting at the time," said John Schlegel, head of positioning intelligence at JPMorgan Chase.

That looked wise when Trump unveiled a barrage of steep tariffs and markets tanked. But many of the same funds were left playing catch-up when markets rallied after Trump’s tariff pause. Wednesday was the largest day of net stock buying for hedge-fund clients of Morgan Stanley since it began tracking the data in 2010. Much of that was the result of short covering, the bank said, which occurs when firms buy back shares to close out their bearish positions and prevent losses.

Rob Citrone, founder of the roughly $2.5 billion macro hedge-fund firm Discovery Capital Management, turned downbeat on stocks ahead of Trump’s big tariff announcement on April 2. He hedged his portfolio by betting against companies exposed to high tariffs.

At the time, the value of Discovery’s bearish bets on stocks exceeded bullish ones by 30%, Citrone told investors in a webinar. It was a prophetic call: Discovery gained about 2% in the first three days of April, according to a note that he sent to investors.

Then Citrone tilted his firm to be more bullish on stocks, he said in the webinar, a move that turned out to be premature as the selloff deepened. Discovery gave back its gains and then some. Citrone readjusted, turning Discovery’s April performance positive again and trimming losses for the year to about 2.3% as of Thursday, a person familiar with the matter said.

“This environment is one of those times when my investment roadmap feels less like a drive down I-95 and more like navigating NYC rush hour with Waze constantly rerouting every 30 seconds," Citrone wrote in the investor note.

Brevan Howard, a roughly $34 billion macro hedge-fund firm, had long positioned its master fund to be bullish on Treasurys, people familiar with the firm said. That fund gained 3.5% for the month through April 4. If the firm kept on with the position, it would have lost money when investors later sold Treasurys en masse.

Many market watchers pointed the finger at hedge funds when Treasury bonds tumbled, suspecting that an unwinding of certain big bets of theirs contributed to the selloff. Bankers and investors focused in particular on a trade that centers on interest-rate swap spreads and has gained traction in the hedge-fund community.

Hedge-fund firms on the whole have still performed better than the market. Morgan Stanley’s prime brokerage unit estimates that the volatility has left the average hedge fund down about 2.3% month-to-date through Wednesday. That compares with a 2.8% loss for the S&P 500.

Some funds lost multiples of that. Bill Ackman’s Pershing Square Holdings, a stock-picking fund, was down 12.9% this month through Tuesday. Ackman said in a social-media post that his firm had no hedges in place that would protect it from a “self-inflicted market crash," a contrast with March 2020 when he made more than $2 billion in a bearish macro bet.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Peter Rudegeair at peter.rudegeair@wsj.com