AXIOMA ROOF™ SCORE HIGHLIGHTS

Investor sentiment experienced a slight dip from its predominantly bullish highs last week, as the July 9 deadlines for trade deals with the Trump administration approached. By the end of the week, investors remained just positive in Australia, Global Developed, and Global Developed ex-US markets, compared to the previous week's bullish stance. In Japan, sentiment shifted from neutral to negative due to unsuccessful trade negotiations with the Trump administration. Similarly, sentiment in Europe weakened slightly amid ongoing negotiations. The UK was the exception, where investors stayed bullish following the signing of a trade deal. Sentiment remained bullish in China ahead of the Politburo meeting which investors hope will result in more stimulus measures being announced.

According to The Wall Street Journal, after weeks of discussions with Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer, Japanese officials finally succumbed to their charm, and said “No”. Since then they have been hosting workshops for other leaders on handling those negotiations titled “The Art of Abstinence: Saying Yes, to Saying No.”

Following this lack of success, and for the second time now – not counting the six-months truce with China - the Trump administration has preemptively extended the deadline for reaching a trade deal with the US by another month, to August 1^st. Certain kinds of toothpaste, it turns out, are harder to get back into the tube than others.

As a group, investors are good listeners, worldly yet easily shocked, hungry for details, and curious without being judgmental, as long as it benefits their financial interests. Yet, despite mounting uncertainty about the impact of a prolonged trade war on everything from corporate earnings, to inflation, and the global economy, both investor sentiment and markets, driven by the simple strength of will – or the strength of simple wills – continues to climb the wall of worry as if a pot of gold awaited them on the other side.

Beginning this Thursday, investors will get firsthand insights from CEOs on how corporate America is navigating the uncertainty brought about by the Trump administration's policy decisions during their Q2 earnings releases. Factset reports that since the end of March, analysts have reduced their Q2 earnings forecasts by 4.2%—a more significant drop than the average reductions over the past five years (-3.0%) and ten years (-3.1%). 

With sentiment this positive and market volatility back down to pre-trade war levels, investors are unlikely to overreact to any negative news in the short term. This week is also light on economic data or policy announcements, now that the pin has been (temporarily) put back into the tariff grenade. Trump is basking in the glow of a trio of recent wins – Iran, the NATO Summit, and the passage of his Big Beautiful Bill – and is unlikely to dampen the mood as he works on adding a fourth win (and potential Nobel Peace Prize application) with a ceasefire in Gaza.

The story of how this trade war ends is a complicated sentence that investors keep trying to finish and put behind them. But it resists finishing, partly because deadlines keep getting extended, and partly because words, once written, are like evidence that can be used against you. For markets, time is money, and when uncertainty is high, investors can usually withhold the pen and just run down the clock. But when time keeps getting distended and bent, like a Salvador Dalí clock, there is no sense of time passing, and therefore no prospect of deliverance from the uncertainty that plagues decision-making.

For now, it seems investors have made a pact with uncertainty: it tells them nothing about the future, and they don’t ask, in case they become shocked by finding out the price of insurance. So they hope for the best and avoid the cost of preparing for the worst. Yet, although he isn’t directly touching them, investors go to sleep every night with Trump very much under their skin.

Note: green background = bullish, red background = bearish
 
Changes to investor sentiment over the past 180 days for the markets we follow: 

How to Interpret These Charts:

Top Charts:
The top charts illustrate the ROOF ratio, which represents investor sentiment. This ratio is depicted in green on the left axis, while the cumulative returns of the underlying market are shown in black on the right axis. Key reference lines include:

• A horizontal red line at -0.5 (left axis), marking the threshold between negative sentiment (-0.2 to -0.5) and bearish sentiment (< -0.5).
• A horizontal blue line at +0.5 (left axis), indicating the boundary between positive sentiment (+0.2 to +0.5) and bullish sentiment (> +0.5).
• A horizontal grey line at 0.0 (left axis), around which sentiment is considered neutral (-0.2 to +0.2).

Bottom Charts:
The bottom charts display the levels of risk tolerance (green line) and risk aversion (red line) within the market, representing investors' demand and supply for risk, respectively. Key insights include:

• When risk tolerance (green line) exceeds risk aversion (red line), more investors are willing to buy risk assets than there are investors willing to sell them at the current price. This scenario forces risk-tolerant investors to offer a premium to entice more risk-averse investors to trade, thereby driving markets upward.
• Conversely, when risk aversion (red line) surpasses risk tolerance (green line), the market dynamics reverse.

The net balance between risk tolerance and risk aversion levels is used to compute the ROOF ratio shown in the top charts, reflecting the sentiment of the average investor in the market.

Blue Shaded Zone:
The blue shaded zone between levels 3 and 4 for both indicators signifies a reasonable balance between the supply and demand for risk in the market. When both lines remain within this blue zone, the market is considered ‘emotionally’ stable. However, when both lines move outside this zone, the significant imbalance in demand and supply for risk can lead to overreactions to unexpected news or risk events.