Continue active refreshing of this index's data?

Continue active refreshing of this index's data?

ROOF Highlights — March 25, 2024

Axioma ROOF™ Score Highlights: Week of March 25, 2024

For these insights and more, follow us at our new home

Potential triggers for sentiment-driven market moves this week1:

  • US: PCE Prices and personal income and spending data. Speeches by several Fed officials.
  • Europe: Inflation data for France, Spain and Italy. Consumer confidence, retail sales and unemployment data for Germany. Q4 GDP (final) for the UK.
  • APAC: Stimulus response by the Chinese authorities to last week’s sudden drop in the yuan’s fixing. Minutes of the BoJ’s rate fixing meeting last week in Japan, as well as retails sales, industrial production, and unemployment data.
  • Global: Any terrorist activities on Western soil ahead or during the long Easter Weekend. The situation in Ukraine and Gaza will also be closely monitored.

Insights from last week’s changes in investor sentiment:

Last week, investor sentiment exhibited a modest increase across most of the markets we monitor, with Japan being the sole exception, where sentiment levels remained unchanged. This modest uplift in sentiment comes on the heels of the interest rate decision meetings conducted by several major central banks the week prior, which did not yield any negative surprises. Consequently, this has facilitated a shift in sentiment from the notably negative or bearish levels experienced in the previous month in seven out of the ten markets we track, with Europe also showing signs of a potential shift. Throughout March, investors have demonstrated a more cautious stance compared to the markets, but there has been a noticeable regaining of risk tolerance over the past fortnight, which has helped narrow the sentiment gap.

In the context of Global Developed Markets, this marks the second instance in the past half-year where investor sentiment has diverged from market performance, only to subsequently reverse direction after a few weeks. This pattern suggests that investors are grappling with a lack of confidence, largely due to ongoing uncertainties about when major central banks might reduce interest rates, leaving investors to speculate.

European investor sentiment saw a slight improvement ahead of the extended Easter weekend, yet it continues to diverge from market trends for the second consecutive month, without showing definitive signs of a turnaround, yet.

The shift in sentiment among investors in Global Emerging Markets now appears to be fully realized, largely driven by Chinese investors moving back to a neutral sentiment from a previously bearish stance. While regulatory interventions in China have artificially put a floor on both markets and sentiment, the supply and demand balance for risk indicates a simultaneous decrease in both risk tolerance and risk aversion. Such an inconsistency is expected in a market where regulatory actions hinder investors from fully expressing their increasing risk aversion (i.e. short sale ban). During this time, it is advisable to consider the level of risk tolerance (indicated by the green line in the bottom chart) as the true(er) measure of sentiment. Following a surge in early March, risk tolerance experienced a slight dip last week as investors still await the specifics of an economic stimulus plan.

Investors in the United States, Europe, and Japan appear to have already priced in the central banks’ decisions and their favorable influence on the markets for the entire year, prompting many analysts to revise their year-end projections upward or to anticipate a mid-year market correction—commonly encapsulated in the adage “Sell in May and go away for the summer.” For the remainder of the year, both market performance and sentiment are likely to be driven by the uncertainty surrounding the timing and size (number) of interest rate cuts by major central banks (Fed, BoE, ECB), while keeping a weary eye on the potential outcome of the US Presidential election in November, which remains too close to call. Whatever forecast investors have made about those two critical events, the only advice we can confidently give without caveat at this time is “Good luck”.

Note: green background = bullish, red background = bearish

Changes to investor sentiment over the past 180 days for the markets we follow:

How to read these charts: The top charts show the ROOF ratio (investor sentiment) in green (left axis), against the cumulative returns of the underlying market in black (right axis). The horizontal red line at -0.5 (left axis) represents the frontier between a negative sentiment (-0.2 to -0.5) and a bearish one (<-0.5), and the horizontal blue line at +0.5 (left axis) represents the frontier between a positive sentiment (+0.2 to +0.5) and a bullish one (>+0.5). Around the horizontal grey line at 0.0 (left axis), sentiment can be considered neutral (-0.2 to +0.2).

The bottom charts show the levels of both risk tolerance (green line) and risk aversion (red line) in the market. These represent investors’ demand and supply for risk. When risk tolerance (green line) is higher than risk aversion (red line), there are more investors looking to buy risk assets then investors willing to sell them (at the current price), forcing risk-tolerant investors to offer a premium to entice more risk-averse counterparts to take the other side of their trade, which drives markets up. The reverse is true when risk aversion (red line) is higher than risk tolerance (green line). The net balance between risk tolerance and risk aversion levels is used to compute the ROOF ratio in the top charts, representing the sentiment of the average investor in the market.

The blue shaded zone between levels 3-4 for both indicators represents a reasonable balance between the supply and demand for risk in the market. Conversely, when both lines are outside of this blue zone, the large imbalance in the demand and supply for risk can lead to an overreaction to unexpected news or risk events.

Jump to a specific market

Asia ex-Japan:

Jump to a specific market >


Jump to a specific market >


Jump to a specific market >

Developed markets:

Jump to a specific market >

Developed markets ex-US:

Jump to a specific market >

Emerging markets:

Jump to a specific market >


Jump to a specific market >


Jump to a specific market >


Jump to a specific market >


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

Back to the top >