AXIOMA ROOF™ SCORE HIGHLIGHTS

• US: PMI, retail sales data, and the Jobs report.
• Europe: Eurozone inflation and unemployment data. ECB meeting minutes.
• APAC: China’s Two Sessions (NPC) 03/4-11 and PMI data.
• Global: Iran, Iran, and Iran.

Investor sentiment stayed firmly on the defensive last week as fresh uncertainty stemming from the SCOTUS tariff ruling collided with a renewed bout of AI-related anxiety. By week’s end, sentiment was bearish in six of the ten markets we track, with another three (Australia, Global Developed Markets, and the US) slipping into very negative territory. Only China remained neutral, for now, as investors returned from a week-long Lunar New Year holiday.

Investors knew that AI would be transformative - that it would deliver profound gains in productivity and accelerate progress across science and medicine. Last week, however, they were also confronted with a less familiar narrative: that AI may prove disruptive in economically negative ways that had not yet been fully considered. Investors are in that space between knowing and not knowing. And in that space, better to be safe than sorry.

SCOTUS: Last week’s SCOTUS decision to strike down the so‑called “Liberation Day” tariffs imposed under the International Emergency Economic Powers Act (IEEPA) was swiftly followed by their resurrection under Section 122 of the Trade Act of 1974 - first at 10%, then raised to 15%, and then lowered back to 10%. [New business idea: bumper stickers reading, “Honk twice if you know the current tariff rates.”] Beyond the confusion over the tariffs themselves, several trade agreements negotiated with the Trump administration over the past nine months have now been thrown into doubt. Whether US importers will be refunded for tariffs already paid is also unclear.

Given the scale of the sums involved, and the fact that this tariff “income” has already been earmarked for consumers in the form of individual “tariff checks”, the broader economic implications are now highly uncertain. This uncertainty comes at a particularly sensitive moment, as affordability has emerged as the dominant voter concern ahead of the US midterm elections in November.

AI Fears: It is one thing for AI to threaten the future cash flows of legacy SaaS companies. It is quite another for it to threaten the future employability of white‑collar workers—the economy’s most powerful consumer cohort. A single, self‑described “fictional” Substack post was enough to shift investor anxiety about AI from an investment risk to a potential systemic risk. There are some fears investors can’t put behind them, the best they can do is to put them beside them. And with these new AI jobs apocalypse fears beside them, investors find that they can’t take comfort in improved margins and worry that whatever consolation higher stock prices might offer in the future, it will only be that, a consolation. 

Last week delivered a one‑two‑three punch to the AI narrative: first Claude, then the Citrini Research post, and finally Block’s layoffs. Together, they knocked roughly $450–500 billion off AI‑related market capitalization. This was not the first time investors had been confronted with the risks AI poses to software companies or the labor market. And yet, each previous time, they returned to the AI theme almost immediately. How do investor keep piling into the AI theme while quietly wrestling with whether to exit it? The answer is a familiar defense mechanism: compartmentalization. But last week, it seems, they were too busy using another defense mechanism, denial, to see it.

Sometimes the right decisions are the wrong ones. Sometimes you can do everything right and still get the short end of the stick. And when that happens, the only control you have is how you deal with that stick (looking at you Anthropic).

As market analysts, we spend a great deal of time studying investor sentiment and its close relationship with volatility. But there is a less appreciated truth: sentiment and volatility often travel together. Strong emotions tend to bring overreactions with them, and the bridge between the two is confirmation bias. The ROOF Scores across most major markets have been bearish or strongly negative for several weeks, signaling that investors were already positioning defensively in anticipation of negative events. As the term suggests, defensive positioning serves a clear purpose - it cushions portfolios against expected losses. Until, eventually, they are no longer needed. Given the depth of the unresolved questions around the economic impact of tariffs and AI, compounded by this past weekend’s launch of another military operation in the Middle East, that protection may be required for some time yet.