What are the key drivers and fears of current market conditions?

Although the recent market slump has rekindled the controversy about whether modern machine-driven or algorithmic markets can intensify the harshness of any volatility, the underlying drivers of the instability are more traditional.

As 2018 progressed, investors became perturbed at three factors: signs that the global economy is softening; the impact of tighter monetary policy in the US and the end of quantitative easing in Europe; and the intensifying trade war between the US and China.

The global economy started last year on a firm footing, but markets are consistently fixated on inflexion points. Since the summertime the impact of US tax reductions has appeared to wane, European growth has

moderated, and China’s decelerating economy has been pummelled by the trade row.

That has led analysts to curtail their projections for corporate profits in 2019. At the same time, the Federal Reserve raised interest rates four times last year and has kept shrinking its balance sheet of bonds acquired in the aftermath of the financial crisis. That has lifted short-term ultra-safe Treasury bill yields to a 10-year high and undermined the long-term argument that there is no substitute, which has helped sustain market estimates.

As a result, Treasury bills beat the yields of virtually every major asset class last year. Goldman Sachs says over the preceding century there have only been three separate times when Treasury bills have experienced such a comprehensive out-performance: when the US ratcheted up interest rates to 20 percent in the early 1980s to tame inflation; during the Great Depression; and at the start of the first world war.