Sell-offs could be down to machines that control 80% of the US stock market, fund manager says

  • Many believe that the different sell-off episodes seen throughout 2018 were caused by these machines, as they act on immediate data releases, without taking the time to digest them as humans would.
  • The daily volume of algo trading can change according to volatility. But over the last few years its impact has become more visible.

Eighty percent of the daily moves in U.S. stocks are machine-led, a fund manager told CNBC on Wednesday.

The phenomenon, also called algorithm or algo trading, refers to market transactions that use advanced mathematical models to make high-speed trading decisions.

Many believe that the different sell-off episodes seen throughout 2018 were caused by these machines, as they act on immediate data releases, without taking the time to digest them as humans would.

"Eighty percent of daily volume in the U.S. is done by machines, so what you get is a lack of focus on earnings, a lack of focus on outlooks and you just get short-term movements based on very specific data that is released every day and that creates noise," Guy De Blonay, fund manager at Jupiter Asset Management, told CNBC's "Squawk Box Europe."

The daily volume of algo trading can change according to volatility. But over the last few years its impact has become more visible. In 2017, J.P. Morgan said that "fundamental discretionary traders" accounted for only 10 percent of trading volume in stocks. This is when traders look at companies' performance and outlook before deciding whether to buy or sell the shares.

De Blonay's comments come after U.S. stocks fell sharply on Tuesday, on the back of concerns regarding the bond market.

Some analysts believe that the sell-off was triggered because of the way the complex machines operate. They are programed to sell when the odds of future market losses increase.

On Tuesday, U.S. short-term interest rates traded above long-term ones and, as a result, the setup of the algorithms could have translated that data as a selling point, leading to a general sell-off.

In February, when stock markets also saw a massive sell-off, a strategist told CNBC that the algo trading had sparked that overreaction.

Salman Ahmed, chief investment strategist at Lombard Odier, said: "The rise of algorithm-based trading means that there are in these algorithms some levels which trigger sell-off, i.e. sell orders.

"Yes, I can argue that we needed some kind of correction, given what has happened over the last few months. But the ferociousness of the intra-day sell-off is driven by these pre-set sell orders, which come programed in these algorithms automatically."