In light of the ceasefire news overnight, here are a few quick thoughts from a sentiment perspective.
I still do not know how to forecast geopolitics. I am none the wiser on predicting what happens next, either during the ceasefire or after it.
That is exactly why I fall back on sentiment analysis.
Geopolitical shocks tend to create fast, emotional re-pricings. Historically, those moments have often been opportunities to lean into buying the geopolitical risk premium.
Following the “prepare, don’t predict” mantra I laid out in my Sentiment Ideas note on 26 March, I use sentiment analysis to identify where the biggest shifts in sentiment and positioning have taken place during the war, and what that may imply for portfolio positioning as the geopolitical risk premium begins to mean-revert.
That moment may, for now at least, already be playing out. But the same framework remains useful in judging where today’s market reactions may be overshooting what sentiment would suggest — or, equally, where they may still be falling short. That is where potential opportunities can lie.
Sentiment analysis can be a useful tool for spotting areas of market overreaction or underreaction in fast-moving markets. But only if you have done the work in advance.
So below is an updated chart showing the biggest moves in our Sentiment Matters Aggregates (SMA) across assets since the start of the war.
A few standouts:
European equities have been among the assets most negatively impacted in both price and sentiment terms.
Cyclicals are another key area where both performance and sentiment have fallen sharply. They have also repriced a meaningful slowdown in global growth, to levels consistent with a sharp deterioration in PMI momentum.
Fixed income: it is not often that Cyclicals and bonds show up on the same side of the ledger, but assets like Bunds and EM Debt have seen meaningful declines in both price and sentiment.
FX: the US dollar has seen one of the biggest positive shifts. On the other side, currencies like the euro and yen have taken a significant sentiment hit and could benefit from a reversal in recent moves.
And then there is oil and the Energy sector. As clear beneficiaries of geopolitical stress, they remain the most obvious candidates for reversal — a view supported not just intuitively, but also by the historical behaviour of energy disruption-based sentiment indicators.
Have a good day & good luck
Lars