Geopolitics is still driving most of the day-to-day gyrations — but investors look like they’re on the verge of moving on.
That doesn’t mean the war is “over.” It means the market is starting to behave in a way that’s pretty consistent with history: geopolitical risk premia tend to expand quickly, but they also erode quickly, often within 1–3 months. So far, this episode has been fairly textbook.
But this isn’t the market declaring victory. It’s the market saying that the uncertainty around future profits has declined.
You can see that in the high-frequency sentiment. Our Quick Risk-on / Risk-off aggregate (daily and weekly inputs only) has rebounded from its late-March low of 38 back to 62 — higher than before the war started. This morning’s price action will likely take a little off, but the bigger point stands: investor sentiment has come full circle in a matter of weeks — from slightly bearish back to properly bullish.
The slower-moving Risk-on / Risk-off aggregate (with more, sometimes monthly, inputs) tells a similar story. The average indicator is at the 60th percentile — not fully back to pre-war levels, but getting close.
Top 3 This Week
- Sentiment: Coming full circle — investors look more bullish than when the war started.
- Geopolitics: So far, markets have followed the textbook.
- Tech: The rally has taken sentiment back to the 90th percentile — increasingly vulnerable to the old ‘broadening out trade’ if the global cycle survives the Iran war.
Sentiment Overview
- Weekly surveys are mixed, but none are close to historical buy/sell thresholds:
- AAII Bull-Bear dipped and remains in net bearish territory.
- Investors Intelligence Bull-Bear is up from last week’s low.
- NAAIM Exposure has rebounded the most, back to the 63rd percentile (well above average).
- GPR (Geopolitical Risk Index) continues to bounce around mostly below the historical buy threshold of 300. Bigger picture, though: we’re still in a world of elevated geopolitical risk. The 1-year average GPR has been above the long-term average of 100 since 2022 (i.e., pre “Trump 2.0”) and continues to trend higher, closing in on early-1990s peaks.
- US flow advantage continues. Weekly ETF net issuance still shows more US domestic issuance than world ETFs, though less than the prior weeks. Worth watching whether flows revert to the pre-war “US exodus” pattern.
- Margin debt fell for a second month, but equity market cap also fell — so the more meaningful ratio (margin debt / market cap) actually ticked up. Still below average and far below pre-GFC extremes.
- The SF Fed Daily News Sentiment index (broader than GPR and a strong contrarian indicator historically) has not recovered from its Iran-war lows. Maybe geopolitical stress is easing, but broader worries about the state of the world have not.
- All three Sentix asset-class indices rose (Commodities, IPO, Real Estate) — consistent with the rebound in broad risk appetite.
- Extremes are heavily skewing towards bullish sentiment:
- Bullish (>90th percentile): 16 indicators (11 last week)
- Bearish (<10th percentile): 4 indicators and only geopolitical risk and policy uncertainty indicators (6 last week)
Equity Sectors
- Most bullish: Technology
- Most bearish: Health Care