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Forced sellers and other distractions

12 March 2020

Disorderly divestments create confusing market dynamics

Last week could be characterised as an “orderly” repricing of equity markets to the consequences of COVID-19 disruptions. This week has seen second-order market dynamics, driving valuations down to levels which do not seem particularly rational anymore.

Are we back to a systemic crisis, the return of a global financial system teetering on the brink of collapse as it did back in 2008/2009? The answer is a firm and resounding ‘No!’.

This time the source of the stock market downdraft is not the financial system itself, but an external shock to global economic activity. Given such shocks happen far more frequently than banking crises and the resilience of the financial system is stronger following the financial crisis of 10 years ago, we see far less stress across the financial system overall.

Nevertheless, stock and bond markets are displaying levels of apparent disorientation as they bounce between brutal sell-offs and staggering recoveries, suggesting that distressed sellers are dominating the markets. The double whammy of the oil price collapse adding to the growth downgrades from COVID-19 counter-measures has clearly worsened the situation, but not to the extent that it can explain some of the market action we are currently experiencing.

Instead, it is likely that a number of large investors who entered this rapid sell-off with geared/ leveraged investment positions (to catch the growth rebound that was predicted at the start of 2020), are now scrambling to reduce their positions because their leveraged market exposure has put most of their capital at risk (needless to say that Tatton portfolios do not hold geared investment exposures). To quote Warren Buffet : “Only when the tide goes out, do you discover who has been swimming naked.”

This may provide some explanation why markets are driven down to valuation levels that appear to price in a sustained fall in company earnings - as would result from a lasting recession - even though it is by no means clear that this is the most likely outcome. In other words, we cannot currently gain much insight from market action, except that  no-one has more insight than anybody else.

What is very encouraging is the willingness for concerted action between governments (fiscal support) and central banks (monetary intervention). It is easier to agree to protect society as a whole from virus disruptions than bailing out the ‘fat-cats’ of the banking sector as was required 11 years ago. On that note we commend the new chancellor, government and Bank of England on taking the lead amongst the western nations in announcing bold action plans to prevent long lasting economic damage from what increasingly looks like an inevitable but temporary public health crisis.

We read from the UK’s actions, but also some of the extraordinary steps taken by the Italian government to contain the economic fallout at household level, that we may well experience, not only a virus inflicted pause to public live and economic activity, but also a pause to the financial rules and obligations that private households and small businesses normally have to live by. This will feel very uncomfortable for most of us and is likely to confuse markets again, but such action is absolutely what may at some point be required to address this formidable challenge.

In all of this we will not lose sight at Tatton of the fact that such extraordinary times also lead to some extraordinary opportunities in investments, as too much focus on the very short term leads to buying opportunities for those with a longer term perspective. Historical precedent tells us that this virus crisis will pass and lead to a strong recovery, because the recessionary conditions are related to a passing condition, rather than a sustained deterioration in the general direction of travel the global economy was on before the virus crisis struck.

20 December 2019

2010/2020 - One decade back, one forward

13 December 2019

Brightening horizons

13 December 2019

General Election Comment

10 December 2019

Tatton Teaser - Property fund suspension

6 December 2019

Wobbly kick-off to the Festive Season

29 November 2019

Markets are driving the markets

22 November 2019

Markets pause for reality check

15 November 2019

Tatton Teaser - US downturn downtime

15 November 2019

Swilling cash eases the market mood music

8 November 2019

Recession concerns retreat

1 November 2019

Crucial October period safely behind

30 October 2019

Tatton Teaser - Bonds improving?

25 October 2019

Slowly turning

21 October 2019

Tatton Teaser - Orderly Brexit?

18 October 2019

Brexit breakthrough versus Brexit fatigue

11 October 2019

Atmospheric Improvements

4 October 2019

Stall speed economy fears spreading

27 September 2019

Ominous US-Dollar strength

20 September 2019

Diverging economic trends - catalyst for trade war resolution?

13 September 2019

Market sentiment rebound

6 September 2019

Choppy water but no storm, yet

30 August 2019

Fattening 'tails'

23 August 2019

Populism Politics Reversing Austerity?

9 August 2019

Bond Markets Unnerve Equity Markets - Again

2 August 2019

The Elephant And The Little Old Lady

26 July 2019

The Quick And The Not-So-Quick

19 July 2019

...'Twere Well It Were Done Quickly

12 July 2019

Positioning for a summer of wait and see

5 July 2019

Liquidity drives stock markets to new highs – for how long?

28 June 2019

The middle of the year - a tipping point?

14 June 2019

Mixed messages

7 June 2019

The return of the central bank put?

31 May 2019

Bond rally musings

24 May 2019

It is getting warmer

17 May 2019

Market support for Trump or unwarranted equanimity?

10 May 2019

Geopolitics re-enter market stage

3 May 2019

Central banks disappoint expectations

26 April 2019

Waning market stimuli put stock markets on notice

18 April 2019

Spring time from here?

12 April 2019

Brexit in-limbo aside, sentiment is improving

5 April 2019

Happy 10th birthday choppy bull market

29 March 2019

Quarter End

22 March 2019

Brinkmanship and extensions

15 March 2019

Bits & pieces

8 March 2019

ECB stimulus U-turn leaves markets unimpressed

1 March 2019

£-Sterling ‘applauds’ prospect of Brexit delay

25 February 2019

Progress?

15 February 2019

Brexit - an investment perspective

8 February 2019

Is 2019’s market recovery beginning to stutter?

1 February 2019

Turnaround?

25 January 2019

Market absurdities?

18 January 2019

Markets looking ahead

11 January 2019

Substantial but fragile New Year recovery

4 January 2019

Year-end turbulences heralding difficult 2019?

21 December 2018

A Turbulent Start to the Holidays

14 December 2018

The Tatton 2019 Outlook

7 December 2018

Roller-coaster Advent

30 November 2018

Predicaments

23 November 2018

Muted replay of 2015 or end of cycle approaching 2019?

16 November 2018

Brexit drama vs. renewed global slow down fears

9 November 2018

The American people have spoken

2 November 2018

Good-bye cathartic October

26 October 2018

Stock markets suffer liquidity squeeze

19 October 2018

Complicated picture suggests taking a step back

12 October 2018

Autopsy of a stock market sell-off

5 October 2018

A bond market sell off & our Brexit view

28 September 2018

Poor politics containing bond market risks?

21 September 2018

Brexit clamour vs real market news

14 September 2018

Financial Crisis - 10 years on

7 September 2018

Interesting times ahead

31 August 2018

Not the end of the world

24 August 2018

Steady markets vs. noisy politics

17 August 2018

Political strongman tactics come home to roost

10 August 2018

Summer heat wave makes way for return of political heat

3 August 2018

A gentle deceleration?

27 July 2018

Hot air for a hot summer?

20 July 2018

Earnings are growing, why worry?

13 July 2018

Trump's trade wars - Hard Brexit demonstration potential?

6 July 2018

It is getting hot

29 June 2018

Digesting or consolidating?

22 June 2018

Fragile recovery

11 June 2018

No Surprises

8 June 2018

Delicate equilibrium

1 June 2018

Ignore politics at your peril...

25 May 2018

Far more interesting than GDPR!

18 May 2018

What's going on?

14 May 2018

Batten down the hatches?

4 May 2018

Past the peak?

27 April 2018

Confusing signals?

20 April 2018

A mixture of messages

13 April 2018

Peaking, plateauing or dimming - and how about that war?

6 April 2018

Could do better

29 March 2018

End of a stormy first quarter

23 March 2018

Now we know it's risky!

16 March 2018

Back to Normal?

9 March 2018

Tariffs to growth

5 March 2018

Time to take some profits

23 February 2018

Change of direction or gradual normalisation?

16 February 2018

Breathing easier for the moment

9 February 2018

Meteoric stock markets crash back to reality

5 February 2018

Good news turns bad news - again

26 January 2018

Surprises

19 January 2018

US$ weakness versus Bitcoin and Carillion

12 January 2018

Bullish sentiment begins to ring alarm bells

5 January 2018

Encouraging kick-off

22 December 2017

Tatton's 2018 Outlook

15 December 2017

2017 drawing to a close

8 December 2017

Progress

6 December 2017

You Have Reached Your Destination

1 December 2017

Sudden but not entirely unexpected

24 November 2017

Invincible markets?

17 November 2017

Yield-curve flattening: a bad omen?

10 November 2017

Nervous investors herald more volatile markets

3 November 2017

UK rate rise: '˜one and done' or beginning of rate hiking cycle?

27 October 2017

Trick or treat season

20 October 2017

30 years

13 October 2017

All-time highs and Q3 results outlook: Reasons to be fearful or optimistic?

6 October 2017

Bad news - good news

29 September 2017

Movements

22 September 2017

QT to reverse QE and 2-year transition period to soften Brexit

15 September 2017

BoE guides for year-end rate hike - Bluff or real?

11 September 2017

'˜Back to school' amidst hurricanes, earthquakes and nuclear threats

1 September 2017

Bad news, good news

25 August 2017

Summer low or summer lull?

18 August 2017

More sellers than buyers

11 August 2017

Stocks take note of North Korea crisis - or do they?

4 August 2017

Consolidated base but momentum dwindling

28 July 2017

Summer thoughts about the '˜longer term'

21 July 2017

Summer lull - delayed

14 July 2017

Pre summer-holiday investment check

7 July 2017

Global growth ploughs on while markets take a breather

30 June 2017

Return of the Taper Tantrum?

23 June 2017

Quo Vadis Britain?

16 June 2017

Central Banks - None the Wiser

9 June 2017

Strong and Stable?

2 June 2017

Expected and unexpected turns of events

26 May 2017

End of globally synchronised growth upswing

19 May 2017

Trump trade reversal - sign of things to come?

12 May 2017

Political volatility vs. market calm

5 May 2017

Megaphone politics calming the stock markets?

28 April 2017

Pollsters win again / 100 days Trump / economy slows / risk appetite returns

21 April 2017

Snap - political risks return - or do they?

13 April 2017

Rollercoaster of expectation changes

7 April 2017

Constructive tones amongst much noise

31 March 2017

Remarkable market resilience

24 March 2017

Returning themes

17 March 2017

Return of the '˜old normal' or calm before the storm?

3 March 2017

February 2017 asset class returns

24 February 2017

One year on from the last stock market correction

10 February 2017

Market focus returns to Europe

3 February 2017

From '˜Trump Bump' to '˜Trump Slump'?

27 January 2017

Consumers make UK the G7 growth champion

13 January 2017

Living with new realities

6 January 2017

Growth boosting '˜Animal Spirits' finally returning?

16 December 2016

Good-bye 2016 - Hello 2017!

9 December 2016

Santa Rally?

2 December 2016

Exchange rates return to the spot light

18 November 2016

Bond market volatility takes centre stage

11 November 2016

Are financial markets ignoring the Trump risk?

4 November 2016

Are markets bracing for a '˜President Trump'?

28 October 2016

Sobering October

21 October 2016

UK government bonds caught in £-Sterling's downdraft?

14 October 2016

Markets buffeted by political risk and economic realities

7 October 2016

Politics are back - £-Sterling plunges - again!

23 September 2016

Definitely not (yet) Taper Tantrum II

16 September 2016

Taper Tantrum II?

9 September 2016

Back to school - end of Goldie-Locks

5 September 2016

UK business sentiment rebound

26 August 2016

Have markets '˜run out of road'?

19 August 2016

Have markets '˜run out of road'?

12 August 2016

Ultra-low UK yields '˜medicine' brings challenges but drives up returns

5 August 2016

Market rally despite UK's central bank announcing emergency support measures for the economy

29 July 2016

Summer blues on the horizon?

22 July 2016

Market exuberance or dawn of a post fiscal austerity era?

8 July 2016

'It's an ill wind that blows nobody any good''¦

10 June 2016

Oil price and bond yield moves cause stock market roller coaster

3 June 2016

Sell in May and go away?

27 May 2016

Brexit fears wane, but UK economic momentum has suffered

20 May 2016

Rate rise anxiety returns, amidst stronger economic data

6 May 2016

Search for direction after the recovery

29 April 2016

Falling US$ and rising oil prices vs. central banks' cautioning

22 April 2016

Politics, politics and politics but markets grind higher regardless

15 April 2016

Relative calm returns - as does rally scepticism

8 April 2016

The Panama Papers revelations - Morality versus Legality

1 April 2016

April fool or permanent market truce as global economy '˜refuses' to change course?

24 March 2016

Quiet markets as terrorist murders return

18 March 2016

Stock market recovery continues - because or despite US Fed meeting and UK budget?

11 March 2016

ECB's Draghi - '˜Super Mario' once more

4 March 2016

Smell of spring in the air

3 March 2016

Platform DFM Tatton goes through £2.5bn and is awarded Defaqto 5 star rating after completing 3 year track record

26 February 2016

Referendum Déjà Vu

19 February 2016

Markets coming to their senses or just a '˜Bear Squeeze'?

12 February 2016

Can markets cause a recession?

5 February 2016

Good riddance January - but will February bring investors relief?

29 January 2016

Markets close tumultuous January on the up as US Fed keeps its cool

22 January 2016

Crisis of confidence in central banks' omniscience emerging as sell-off driver

15 January 2016

Bear markets without recession tend to be brief

Media Enquiries

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