AXIOMA ROOF™ SCORE HIGHLIGHTS

• US: CPI, PPI, retail sales and industrial production data. Fed Chair testimony before Congress, Earnings from  McDonald's, Coca-Cola, Cisco Systems, and Applied Materials.
• Europe: GDP figures for the Eurozone and the UK.
• APAC: China’s CPI, PPI, and monetary aggregates, data. Australia’s consumer and business confidence index, and Q4 home credit data.
• Global: News on additional “massive reciprocal tariffs” in addition to ones on steel and aluminum.

Investor sentiment remained unchanged from the previous week, except in the UK where investors turned bearish for the first time since May 2024. Globally, sentiment remains cautious ahead of potential new tariffs from the Trump administration, expected as soon as this week. US investors are grappling with the dual pressures of a culture war at home and a trade war abroad. Additionally, there are still no details about a peace plan for either the Middle East or Ukraine, nor a clear roadmap for the US-China relationship. On the earnings front, Q4 results provided a temporary boost, but the lack of bullish guidance for the upcoming quarters has not helped investor sentiment regain its post-election strength.

The sixties and seventies are often referred to as the decades of the sexual revolution because they took place in that post-Pill, pre-AIDS golden period where people thought they could have all the sex they wanted without consequences. Well, there were consequences. The twenty years post-Cold War, pre-MAGA was an economic boom period when liberal politicians thought they could enact as many progressive laws as they wanted, shifting America’s culture to the left, without consequences. Well, there were Trumpian consequences.

Domestically, the number of executive orders in Trump’s first three weeks in office has been off the charts, far exceeding the usual first 100 days of any presidency. At this rate, it may seem that Trump risks making numerous decisions as President, but none that are truly Presidential - none that could define his presidency or earn him a place on Mount Rushmore. But that may be missing the point. The geist of the zeit is that Trump is not fighting an economic war – the US economy is doing fine, its stock market is the envy of the world - he is fighting a culture war, and to win it, Trump and his Mini-Musk have drafted Big Tech to help them “flood the zone”².   The pair of them are focused on wrestling the geist back from the left, despite Time Magazine’s attempt (with their latest cover) to bring forward the moment in the Trump-Musk relationship where things get, well, Freudian.

Internationally, that imposing a 25% tariff on Canada and Mexico was a mistake, was clear to anyone who could read. That Trump, under pressure from a global market downturn, blinked first by removing those tariffs before they took effect, was clear to anyone who could read between the lines. Both Putin and Xi have become adept at reading between the lines, and will rightly be interpreting last week’s tariff tantrum as Trump’s self-assertion disguised as self-abnegation, and Trudeau and Sheinbaum’s rebellion masquerading as compliance. Meanwhile, Trump continues to claim a special relationship with both Putin and Xi that would never stand up in court as a ‘friendship'.

Talks of additional tariffs are raising concerns about the potential costs of the America First policy for the US economy. Last week, data revealed the largest increase in inflation expectations since November 2023, marking the biggest monthly jump in 14 years. At the same time, consumer confidence fell for the second consecutive month, reaching its lowest level since July 2024. Fed Chair Powell is also set to present the Fed’s perspective on how Trumponomics is influencing the path of interest rates for the rest of the year. With investor sentiment weak or negative across all markets we follow except China, Trump may soon discover that investors give a Musk.

1 If sentiment is bearish/bullish, a negative/positive surprise on these data releases could trigger an overreaction.
2 Trumpian policy as cultural policy by Tyler Cowen.
 

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.