AXIOMA ROOF™ SCORE HIGHLIGHTS

This week brings what may prove to be the year's most consequential geopolitical event: the US midterm elections, an exercise that will determine control of Congress for the next two years while potentially shaping the political landscape through 2028. Investors are less focused on which party prevails than on whether the outcome is accepted as the legitimate expression of voters' choices. The principle behind a free and fair election is not that voters choose correctly, but that they are free to choose at all. Polling suggests Democrats could regain control of one or both chambers, raising concerns that recounts, litigation, certification challenges and competing narratives of legitimacy could extend political uncertainty long after ballots have been cast.

Until the results are certified, investors would be wise not to read between the lines or search for a through-line. There are no lines yet, only snapshots, and most of them are out of focus.

Judging by the latest ROOF Scores, many investors have already assumed the brace position. Four weeks ago, sentiment among investors in three of the ten markets we track was still Positive, while investors in six others remained Neutral. Today, sentiment among investors in seven markets has deteriorated into Bearish territory, while sentiment among investors in the US and broader Developed Markets has turned Negative. Only Australian investors remain broadly balanced between risk tolerance and risk aversion. The deterioration is no longer confined to a handful of cautious investors or a single region, but reflects a broad retreat from risk across our investment universe.

Nor is this simply a story of investors becoming less willing to take risk. Over the past month, average risk tolerance has fallen while average risk aversion has risen, a two-sided deterioration that suggests investors are simultaneously finding fewer opportunities worth pursuing and more reasons to avoid the ones already in front of them. Sentiment among Developed Market investors now sits at -0.50, balanced exactly on the boundary between Negative and Bearish, a reminder of how little additional bad news would be required for caution to become outright pessimism.

Yet investors are not retreating in perfect unison. Cross-market sentiment dispersion has risen from the 5th percentile of its historical range a month ago to the 37th percentile today, indicating that local considerations have been reasserting themselves across markets. Investors broadly agree that conditions have become more difficult, but elections, geopolitics, growth concerns and AI financing risks are increasingly being weighed differently depending on where those investors sit.

Even if the election produces a reasonably clear outcome, investors may then find themselves contemplating a Washington in which a Democratic Congress and a MAGA administration spend the next two years testing the practical limits of divided government, increasing the likelihood of legislative gridlock, repeated budget confrontations, government shutdowns, and a growing reliance on executive orders and court rulings to resolve disputes that would ordinarily be settled through the legislative process. For investors, the concern is less about partisan outcomes than about the possibility that political conflict becomes the dominant mechanism through which public policy is made, delayed or reversed. (For details of what this might look like, see scenarios 4a, 4b, and 4c in our piece on Stress Testing the US Midterms).

That political backdrop is unlikely to distract investors from another bout of AI anxiety. Earnings from Apple, Palantir, AMD and Qualcomm will arrive only days after another reporting season in which three of the four hyperscalers at the center of the AI build-out reported negative free cash flow as capital expenditures continued to accelerate. Investors have spent the past several years treating the largest technology companies as virtually inexhaustible sources of funding, but even the strongest balance sheets are not immune to the arithmetic of spending cash faster than it is generated. In an environment where both capital and patience have become more expensive, attention is shifting from whether AI will create value to whether that value will emerge quickly enough to finance the enormous investments being made in anticipation of it. If companies with trillion-dollar market capitalizations, dominant market positions and some of the strongest balance sheets in corporate history are beginning to consume cash at an uncomfortable pace, investors naturally start wondering what that implies for the rest of the funding chain. The AI story was built on the assumption that scale creates resilience. This earnings season, investors are looking for evidence that resilience still has cash attached to it.

AI increasingly seems to occupy an awkward place in the invetment narrative. The hyperscalers present it as the opportunity that will define the next decade, while simultaneously asking investors to view the spending required to pursue it as an entirely manageable risk. Investors are beginning to wonder whether those two claims can remain true indefinitely.

Regime Distribution: Three horizontal stacked bars show how the ten markets are distributed across the five regimes — today, one week ago, and one month ago. Each bar is colored by regime: red (Bearish), yellow (Negative), grey (Neutral), blue (Positive), green (Bullish). The white vertical marker on each bar shows the aggregate ROOF score for that period. Tick marks below the bars align with the regime thresholds at ±0.20 and ±0.50. Reading it: a leftward shift over time indicates broadening deterioration; a rightward shift indicates broadening improvement. Widening tails signal rising dispersion.

Market Monitor: A table showing, for each market: current ROOF score, current regime, weekly and monthly changes, regime one month ago, and distance to the nearest extreme threshold. Color cues highlight regime deteriorations (red) and improvements (green). Reading it: scan the "1M Ago Regime" column for markets that have crossed regime bands over the past month; check the "Distance" column to find markets close to the ±0.50 extreme thresholds.

Correlation Matrix (Δ1M): A heatmap of correlations between monthly sentiment changes across all market pairs, over a rolling 60-day window. Green cells indicate that investor sentiment in the two markets changed in the same direction; red cells indicate opposite directions. The rightmost column shows each market's average correlation with the rest of the universe. Important: these are correlations of sentiment changes, not market returns or ROOF levels. High correlation means investor mood in the two markets moved in sync over the past 60 days.