Axioma ROOF™ Score Highlights: Week of April 21, 2025

Insights from last week's changes in investor sentiment:

Investor sentiment continues to be very weak, with bearish trends observed in seven out of the ten markets we monitor. Despite gold reaching a new historical high and a 90-day pause in the trade war, sentiment remained very negative in both Australia and the US during the holiday-shortened week. Meanwhile, sentiment in the UK ended neutral, albeit with a negative bias, as it has yet to draw Trump's ire.

As he stated in his book – The Art of the Deal – Trump judges success solely on the level of chaos generated, rather than the actual result. But what investors are witnessing right now - the capital flight from US equities, US treasuries, and the USD (with the Dollar index dropping to a three-year low of 98.6). The surge in safe-haven assets like gold, the Japanese yen, and European bonds. The doubling of market risk, the loss of meaningful diversification opportunities, and the diminished confidence in forecasts leading to a reduced willingness to speculate. This is not chaos. This is consequence.

In his second term, Donald Trump, flanked by his handpicked cabinet nominees - all slim, fit, tanned, and expensively preserved yet feeling the need to continuously impress - is steering the global economy to a place where the reality of interdependent supply chains can't follow. Meanwhile, world leaders are still mulling over the ransom note they received from him on Liberation Day ordering their complete allegiance to his anti-China strategy: “Help us fight China or your economy gets it. You have 90 days.”

Last week, Trump announced that dozens of leaders were already begging him for a deal, including China. However, the lack of any details has so far generated from investors only a weak undercurrent of shrugged shoulders in the manner of the underwhelmed. China, meanwhile, has sent out its own ‘counter-ransom’ note today, threatening “reciprocal countermeasures” against the economy of any leader that strikes a deal with Trump at China’s expense. Welcome to Trump World, where the only certainty is uncertainty.

This past Saturday in Rome, US and Iranian envoys held a second round of 'indirect' nuclear talks. While not much is known about what was discussed except just that, metaphorically speaking, both sides have begun to sniff each other’s bottoms and did not find the odor entirely repellent. Another round of ‘sniffing’ has been arranged for this coming Saturday in a park in Oman.

If Donlad Trump didn’t exist, Orwell would have to invent him. At a time when both the legislative and judiciary branches of government have lost their independence - the former willingly, the latter irreverently - the Fed remains the only bastion of independence left, preventing the US from becoming a de facto totalitarian regime. In the best-case scenario, the Fed remains independent until the end of Powell’s tenure in May 2026, but the Trump administration is already taking steps to have the courts reexamine (a.k.a., revoke) the so-called 'Humphrey’s Executor' precedent, a 90-year-old ruling that stops presidents from firing the leaders of quasi-governmental institutions without cause. Investors didn’t like it the first time Trump suggested a more hand’s-on management of the Fed, and they won’t like it one bit if it becomes official policy.

The balance of supply and demand for risk remains highly negative in eight of the ten markets we follow, indicating a significant oversupply relative to potential demand (see bottom chart in each of the markets below). This week, geopolitical uncertainty will rival factual corporate earnings for investor’s attention and it will be up to CEO’s guidance to either provide the clarity investors seek or plunge markets deeper in doubt.

Note: green background = bullish, red background = bearish 

Potential triggers for sentiment-driven market moves this week[1]

• US: March’s durable goods orders and April PMI data. Earnings from Alphabet, Tesla, AT&T, Verizon, T-Mobile, Comcast, Boeing, Intel, IBM, Merck, and P&G.

• Europe: Eurozone April PMI data. UK retail sales data. France’s business and consumer confidence surveys. Earnings from SAP, BNP Paribas, AON, and Sanofi.

• APAC: China’s PBoC interest rate decisions (unchanged) and PMI data. FDI sank 10.8% in 2024 after a 27.1% drop in 2023.

• Global: This week will continued to be all about the trade war between the US and China – retaliation versus reconciliation.

[1] If sentiment is bearish/bullish, a negative/positive surprise on these data releases could trigger an overreaction.

Changes to investor sentiment over the past 180 days for the ten 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.