As we enter week three of the war with Iran, geopolitics is still driving headlines — and markets. From a “geopolitical stress” perspective, a lot has already been priced in. The Geopolitical Risk Index (GPR) — my preferred way to track geopolitical stress — has been above the historical buy threshold of 300 on most days since the war began.
What’s moved much more slowly is investors’ general risk appetite. Many indicators have shifted in a bearish direction, but I’d describe the overall mood as less bullish, not outright very bearish. My best guess is it would take another high-volume, big down day to push a broader set of risk-on/risk-off indicators into clear investor bearishness.
Against that backdrop, our Risk-on / Risk-off Sentiment Matters Aggregate briefly dipped to 53 last week, but finished the week at the 56th percentile — down from the 67 five-year high in January. That’s the lowest in four months, but it’s far from panic. For context, sentiment fell to the 29th percentile during the Liberation Day sell-off.
The VIX (one of the best high-frequency mood gauges) almost hit its historical buy zone last week. In the early hours of Monday, during the oil spike, it briefly touched 35.24. Technically, that’s in the 35–40 range which has historically been followed by an average ~22% S&P 500 rise over the next year, with above-average returns ~87% of the time. But a few minutes 0.24 points above the threshold isn’t exactly a robust signal — our back-tests are based on closing levels, not intraday prints.
One thing that does help cut through the day-to-day noise is the monthly slog of reading buy-side asset allocation notes for our proprietary Buy Side Sentiment Tracker. This month’s takeaway was pretty clear: most investors are still looking through the war, treating it as a temporary blip rather than a regime shift. I saw no material view changes in updates since the war began — and historically, that’s usually been the right approach. Overall, the Buy Side Sentiment Tracker printed the most bullish reading since we launched it in 2024.
Top 3 This Week
- Sentiment: No longer bullish — not yet bearish.
- Geopolitics: Outsized price and sentiment moves create vulnerability — not just in obvious assets like oil, but also in “defensive winners” like Utilities.
- Gold: Closing in on recent sentiment highs again — increased vulnerability building.
Sentiment Overview
- Big picture: clearly cooler, but not capitulation. Sentiment has moved from “bullish” to “neutral-ish,” and the next leg lower would likely require another big risk-off day.
- STAX (Schwab Trading Activity Index) jumped to a 3½-year high. It’s useful because it’s based on actual retail activity/positions (not surveys) and has a decent contrarian track record. But 57.3 has historically been consistent with slightly below-average 12-month equity returns — not a strong sell signal yet.
- Bond implied volatility has risen sharply — but from very low levels. It’s only back to long-term average, and it’s generally been less useful as a contrarian indicator than equity implied vol (VIX). Historically, you’ve needed a much higher MOVE (e.g., >180) to get a cleaner equity buy signal.
- Extremes are skewing bullish, but less than before:
- Bullish (>90th percentile): 11 indicators (vs 14 last week)
- Bearish (<10th percentile): 6 indicators (vs 8 last week)
Equity Sectors
- Most bullish: Technology
- Most bearish: Health Care