While it is impossible to predict when a panic will occur and how long it will last, I hope this week’s price movements have not come as a complete surprise to you. Some, however, are more understandable than others. It is important to see COVID-19 as a catalyst rather the sole cause.

The main action has been in US equities, which had been leading other markets higher to varying extents. Such a sudden about turn is bound to cause alarm. Passive investment works both ways and previous over-valued favourites can be expected to fall furthest. FOMO was concentrated in a small number of growth stocks, some, but not all of which really were generating higher earnings. Most companies were not doing especially well and so returns had become dependent on their share prices going up (often assisted by buyback programmes). One or more corrections of 10% or greater have been inevitable since at least as far back as the extraordinary rally in Q1 of 2019. Nevertheless, investors will be back soon enough as they have to do something with their money.

After ignoring fundamental factors for too long, investors have realised that none offer any support. In geopolitics, division and reckless posturing are the norm. The global economy has never properly recovered from the GFC and growth has been drifting for the last 5 years or more. The main locomotive of China has been slowing long before the COVID-19 epidemic. A relatively recent development, however, has been the growing realisation that monetary policy has run out of bullets. This is undoubtedly fueling some of the panic. There really are few positives to latch on to.

Price movements in the bond markets may seem logical with a flight to safety and high yielders (aka junk) being sold off as the equity proxies that many of them are. However, it seems clear that most governments are limbering up for some major fiscal expansion. This will, sooner or later, cause yields on sovereign to start to rise. It may take time but the supply of bonds will start to exceed demand.

Except for a flight from Emerging Market currencies, FX movements have not yet been substantial. The traditional safe havens of yen and Swissie have not gained much at all and gold has even fallen back this week. The rally in the euro is slightly surprising and may reflect expectations of fiscal stimulus leading to higher bond yields (they could scarcely go much lower). The pound is somewhat softer because of the sabre-rattling in advance of the Brexit negotiations and the apparent indifference of the UK Government to the impact on many businesses and the wider economy.

Next week could well see a bounce-back, but do expect more panics. This really is time to ‘keep your head while all about you are losing theirs.!