The Sell-Off: Trick or Tweet?

 

Asset Valuations and Cross-asset Correlations Are All About …. Deflation and Social Media!

 

The latest market panic and fears over recession and growing deflationary pressures encourage us to dig into our research archives. The market may be over-reacting, but it’s clear from history that the biggest threats to financial markets come in deflationary periods. If the coronavirus shock proves sufficiently deflationary, equity valuations could collapse by more. The key takeaway is that modest inflationary periods favour equities, but, providing that inflation remains below around 6%, bond and equities together offer great hedges against unexpected Risk-On and Risk-Off shocks.