AXIOMA ROOF™ SCORE HIGHLIGHTS

• US: PCE price index, Q3 GDP revision, PMI data, and U-Mich consumer survey. Q4 earnings from 3M, Netflix, J&J, Visa, Abbott Laboratories, GE Aerospace, P&G, and Intel.
• Europe: UK inflation, labor market, retail sales, and public sector finances. Eurozone PMI data, and Germany’s economic sentiment index. ECB policy meeting minutes.
• APAC: China Q4 and 2025 GDP growth, industrial production, retail sales, fixed asset investment, industrial capacity utilization, unemployment, and FDI data. BoJ interest rate setting meeting, and Nov. machinery orders data.
• Global: New tariff threat from the US. Rising China-Japan and US-EU/NATO tensions.

Investor sentiment was broadly unchanged last week, with the only notable move coming from Japan, where investors turned bearish. Ongoing concerns that new stimulus measures may eventually be offset by fiscal tightening and higher rates – evidenced by the bond market - pushed Japanese sentiment deeper into negative territory. Global Emerging Markets sentiment remained bullish, even as Chinese investor sentiment slipped from neutral into negative. The overall stability in sentiment reflects declining market risk, and should not be misinterpreted as a renewed willingness to take on more of it. The combination of lower volatility and lower trading volume suggests that investors are pausing rather than positioning - waiting for companies to “show me the earnings.”

Despite markets hitting fresh consecutive highs, investor sentiment across regions remains well below last summer’s peaks. This persistent divergence underscores the absence of strong conviction and a continued wait‑and‑see stance, with investors requiring more reassurance. In 2025, company CEOs were given the benefit of the doubt and market gains were driven largely by multiple expansion; in 2026, investors will need to see actual earnings growth to justify current valuations and ease lingering bubble concerns.

In the US, the 20‑day average USD trading volume has continued to decline since late November, and is now back to levels last seen in September. At the sector level, the standout exception remains, unsurprisingly, technology, and specifically AI‑related stocks. The AI theme appears uniquely exempt from the usual burden of earnings proof. Familiarity, it seems, trumps everything else. Why else would investors keep making the same mistakes over and over?

The Venezuela, Iran, and Greenland developments over the past few weeks have made it clear that the geopolitical noise of 2025 will only get louder in 2026, becoming deafening at times. Markets will become event-driven rather than assumption-driven (e.g. do not assume NATO will hold if the US takes Greenland by force). In the best‑case scenarios, this will simply translate into two‑way volatility spikes across markets, making any sudden investment decisions look, in hindsight, ill-bred. 

The list of geopolitical events that could slip into worst‑case scenarios is already long - Venezuela, Iran, Greenland, Colombia, Mexico, Cuba - and could very well get longer. Add to that the growing roster of domestic political flashpoints - elections, protests, Supreme Court decisions, questions around Fed independence, and ongoing immigration operations - not to mention the unfinished hot wars in Ukraine and Gaza. In 2025, the AI theme was strong enough to absorb these risks; but as last November reminded investors, in 2026 it could just as easily transmit them across markets instead.

In short, the current lackluster, mostly neutral sentiment across markets reflects a shift in investors’ relationship with the AI theme: they still ‘love’ it, but are no longer ‘in love’ with it. Love is what’s left when the blindness, excitement, and passion of being ‘in love’ that fades with time has gone. Investors still care about the theme, still want it to succeed, but the illusions are gone - and the “blind eye” has quietly been turned back to its original ON position. That kind of love is more enduring, but also far more discriminatory about what behavior (read: “valuation”) it is willing to put up with, and it reflects a clear shift in investors’ risk‑reward calculus in 2026.