Until fairly recently, the activity we've seen in equity markets in response to the coronavirus disease (Covid-19) could have been characterised as an 'orderly' repricing.
Yet last week saw second-order market dynamics, driving valuations down to levels which don't seem particularly rational anymore.
So 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 pressure on the stockmarket isn't the financial system itself, but an external shock to global economic activity.
Such shocks happen far more frequently than banking crises, and the resilience of the financial system is stronger following the financial crisis. Given all this, 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.
This suggests it's distressed sellers that are dominating the markets.
The double whammy of the oil price collapse and the growth downgrades from Covid-19 countermeasures has clearly worsened the situation.
But this hasn't been to the extent that it can explain some of the market action we're currently experiencing.
Instead, it's likely that a number of large investors entered this rapid sell-off with geared/ leveraged investment positions (to catch the growth rebound predicted at the start of the year.
Those same investors are now scrambling to reduce their positions because their leveraged market exposure has put most of their capital at risk (needless to say we don't hold exposure to geared investments).
To quote Warren Buffet: “Only when the tide goes out, do you discover who has been swimming naked.”
This may provide some explanation as to 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.
This is even though it's by no means clear this is the most likely outcome.
In other words, we can't gain much insight from current market activity.
The policymakers' response
What's encouraging here is the willingness for concerted action between governments and central banks.
It's 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.
There've been some concerns raised that the UK isn't doing enough.
But we see it as positive that the new chancellor, government and Bank of England are announcing bold action plans to prevent long-lasting economic damage from the virus.
These steps are being taken to tackle what increasingly looks like an inevitable but temporary public health crisis.
Alongside the UK's actions, the Italian government has taken some extraordinary steps to contain the economic fallout at a household level.
We read from all this that we may well experience not only a pause to public life and economic activity, but also a pause to the financial rules and obligations that 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 what will likely be required to address this formidable challenge.
Of course, too much focus on the immediate short term leads to buying opportunities for those with a longer term perspective.
Historical precedent tells us this virus crisis will pass and lead to a strong recovery.
This is because the potentially recessionary conditions are related to a passing condition, rather than a sustained deterioration in the state of the global economy before the virus crisis struck.