To The Moon

Investor sentiment continued to slide this week, as hopes for clarity in the Middle East once again gave way to thicker and more oily fog. Investors are now decisively bearish in eight of the ten markets we track, with the remaining two - the US and China - clinging stubbornly to negative territory. And this snapshot was taken before oil reminded everyone of its geopolitical résumé by vaulting back above $100 over the weekend for the first time since Russia’s invasion of Ukraine.

A bearish signal simply means that caution has won the popularity contest. Risk‑averse investors now vastly outnumber those still willing to take risk, leaving plenty of sellers and very few buyers at current prices. The adjustment mechanism is neither subtle nor new: sellers accept discounts to entice the shrinking pool of risk‑tolerant buyers. Prices fall, narratives scramble to catch up, and markets are reminded once again that gravity still works.

The Strait of Hormuz is the point at which geopolitics meets the global economy in its most direct form. An oil shock at this chokepoint will affect Asian economies the most. For context: Russia exported roughly 7 million barrels per day before sanctions; about 20 million barrels transit the Strait of Hormuz on a normal day - suggesting this oil shock could be three times larger than the one markets experienced in 2022.

Last week, investors assumed this military confrontation would remain tactical. A war with Iran makes little strategic sense, sits uneasily with the Trump administration’s own National Security Strategy, contradicts 2024 campaign promises, and weakens the moral argument against Russia’s invasion of Ukraine (for similar ‘national security’ reasons). Combined with a recent pattern of short, contained military actions, investors initially priced in a limited escalation and no material oil shock.

That assumption is now being tested. Risk-tolerant investors insist that markets are the car keys to the administration’s decision-making process, but they forget to say that those can be easily misplaced and hard to find.

Markets opened this week with a clear signal of their displeasure with this war and its potentially severe economic consequences. The open question is whether the administration listens—as it has in the past—or whether this time the message arrives too late.

Someday, perhaps soon, AI bots will account for a large share of market volume—agents free of memory and desire. Memories that evolve, distort, and anchor expectations; desires that pull beliefs toward preferred outcomes. Together, memory and desire create bias. The theoretical defense for investors in a geopolitical crisis is therefore simple: trade the present moment, remain open to multiple outcomes, and resist narrative comfort. In short—be the bot.

In practice, however, as the ROOF Scores below suggest, investors are finding this kind of self‑imposed amnesia difficult to achieve. Frontal lobes remain firmly engaged. Until clarity emerges on how this conflict ends, emotional overreactions should be expected.

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

• US: CPI, PCE, and trade data. March University of Michigan Consumer Sentiment Index.

• Europe: UK monthly GDP, trade data, and the British Retail Consortium Retail Sales Monitor. Eurozone industrial production and CPI data.

• APAC: China’s CPI and PPI data, NPC meeting and more economic target releases after last week’s softer GDP target of 4.5-5% growth. Japan household spending and PPI data.

• Global: IEA and OPEC reports on the supply shock of seaborne energy from the Persian Gulf.

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

Note: green background = bullish, red background = bearish

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.