AXIOMA ROOF™ SCORE HIGHLIGHTS

• US: FOMC minutes, CPI March) and PCE (Feb.) data, Consumer Sentiment reading.
• Europe: Eurozone retail sales. Germany’s factory orders.
• APAC: China CPI and PPI data. Japan consumer confidence.
• Global: Expect more huffing and puffing before anyone actually tries to blow the house down ahead of Monday’s Tuesday’s Hormuz deadline.

Identifying investor sentiment is a bit like inferring the presence of an exoplanet we can’t see directly. Astronomers look for small gravitational distortions - or “wobbles” - in the paths of objects they can observe and whose orbital fields they’ve already mapped. Likewise, we can’t observe investors’ strategies directly, so to infer whether investors are positioning bullishly or bearishly, we look for comparable “distortions”: active returns in sector portfolios we can observe and whose factor exposures we’ve already mapped, classifying sectors as risk-tolerant or risk-averse. When a risk-averse sector rises as the market falls, it suggests investors are rushing to safety.

According to those “wobbles,” Global Developed ex-US investors have been implementing bearish strategies for 39 consecutive days - and counting. While that may sound like a long stretch of pessimism, our history back to January 1997 shows 14 periods in which investors remained bearish for longer than 39 days (with an average duration of 59 days).

The table above records historical drawdowns in the ROOF Score for Developed ex US markets, detailing how long investors remained bearish, how low the ROOF Score fell, and how many days were required for sentiment to turn bullish again (ROOF Score >0.50).

The shortest sentiment “recovery” (15 days) came immediately after the COVID crash, following a massive, coordinated QE effort by major central banks - a feat they are unlikely to repeat in today’s inflationary environment, in the middle of a global oil shock.

Many of the market charts below show ROOF Scores that appear to have bottomed out recently, but we would caution against concluding that investors have reached peak bearishness. Much of the recent “recovery” in ROOF Scores has been driven by falling market risk rather than clear “wobbles” back toward risk-tolerant sectors. Volatility is fickle. After the “Tuesday 8PM” deadline passes - unless another (fourth) deadline is announced - volatility, and sentiment, are likely to take their cues from any attacks on the region’s oil and civilian infrastructure.

Against this backdrop, headline risk remains elevated - especially around communications from the White House.

Investors don’t believe in censorship, but President Trump’s tweets are making them believers in self-censorship. With each post, it’s as if the President were living inside a movie trailer, and this is where the Talking Heads song would fade in: “AND YOU MAY TELL YOURSELF, THIS IS NOT MY BIG BEAUTIFUL WAR”.