AXIOMA ROOF™ SCORE HIGHLIGHTS

• US: PCE inflation, personal income and spending, durable goods, and consumer confidence data. FOMC meeting minutes. Turkey, stuffing, and shopping.
• Europe: Eurozone inflation, economic sentiment, and consumer confidence data.
• APAC: Japan retail sales, industrial production, and unemployment data.
• Global: Approaching the three-year mark, the conflict in Ukraine has entered its most dangerous phase as January 20th nears. Additionally, with Iran vowing to retaliate against Israel before then, investors are on high alert for a significant security risk event in December.

Investor sentiment declined across all markets we monitor, except Japan. In Japan, investors grew more bullish following better-than-expected inflation data, which reduced the likelihood of the BoJ raising interest rates soon. Sentiment ended the week negative among investors in Asia ex-Japan, Global Developed, Global Emerging markets, and Europe. Meanwhile, sentiment weakened to a neutral stance in China, Global Developed ex-US markets, the UK, and the US.

China: Having observed the property market’s decline over the past three years, Chinese authorities have now introduced a substantial support package to stabilize the real estate sector. However, the design of these measures indicates that China’s leadership still believes an economy growing at 5% does not require additional stimulus. The real concern for investors is not whether the economy is truly growing at a 5% rate (it isn’t), but the significant decrease in consumer demand and private sector investment. This crisis of confidence complicates China’s transition from a debt-financed, industrial output and export-reliant model to one driven by domestic demand and consumer spending. Investor sentiment and markets are likely to remain under pressure until additional demand-focused stimulus is unveiled, as investors anticipate further economic headwinds from the incoming Trump administration after January.

The US: Earlier this month, American voters voiced their dissatisfaction with the current government, deeming it broken. Over the past three years, housing prices have continuously climbed, editing the dreams of potential homeowners from floating in pools to drowning in debt. They elected an anti-establishment candidate, who has quickly appointed other anti-establishment figures to his reconstruction team. Now that we know the ‘Who,’ we need to understand the ‘How.’ The burning question for investors is whether all of Trumps horses and all of Trump’s men can put Humpy Dumpty back together again. They may have to wait until January 21st to find out.

Rest of the World: Investors in Europe, Asia, and Global Emerging markets, relegated to the role of casual observers, have been closely monitoring events in the US and China, adjusting their portfolios and moods reactively. The lack of a comprehensive plan from either leadership team on addressing both domestic issues and their bilateral relationship has created an uncertainty bubble. Jamie Dimon, the CEO of JPMorgan Chase, recently warned that the world is entering its most dangerous time in decades. Meanwhile, his bank announced record profits, significantly beating analysts’ expectations, and making him the second highest-paid bank CEO in the world. It seems to be the best of times for those warning investors it is the worst of times.

In the uncertainty bubble, investors are both frustrated by other investors’ increasing negativity and astonished by others’ naive positivity. It’s like a Schrödinger’s box where investors are simultaneously risk-tolerant and risk-averse, until the veil of ignorance is finally lifted.

Predictability is the missing ingredient in investors’ forecasts, without which they cannot get enough confidence to increase their risk tolerance. Invest without it, and the chances are high that reality will fail to meet expectations – the something did not get enough whatever, the whatever got too much something, things are rising too much, others are failing to rise. With high uncertainty, investors forecast, and fortune laughs. What they least expect, fortune warns, expect it.