Ruffer has warned that investment markets are becoming increasingly driven by narratives rather than company fundamentals, raising the risk of sharp reversals when investor sentiment changes. In its Ruffer Review 2026, investment specialist Gemma Cairns-Smith examines how social media, retail trading platforms and institutional investment strategies are reinforcing market trends and potentially increasing volatility.
The report argues that stories have always influenced financial markets, from historical speculative bubbles to the dot-com boom. However, the speed at which information now spreads and the ease with which investors can trade have increased the influence of market narratives. Artificial intelligence, social media personalities and online investment communities can all contribute to rapid changes in investor sentiment and asset valuations.
During 2025, market movements were influenced not only by earnings and economic data but also by themes such as artificial intelligence and expectations surrounding US trade policy. The so-called TACO trade, based on the belief that Donald Trump would retreat from tariff threats when faced with market resistance, encouraged some investors to buy market declines. Meanwhile, enthusiasm for AI-related businesses helped support valuations, sometimes even when the underlying financial evidence remained limited.
Ruffer argues that these conditions can create a feedback loop in which rising prices attract further investment, reinforcing the original narrative. Behavioural biases, including herd behaviour and the assumption that recent trends will continue, can make investors more likely to follow prevailing market sentiment rather than assess valuations independently.
The changing structure of markets may also amplify these movements. Zero-commission trading, investment applications and social media have reduced barriers to participation for retail investors. The report cites research indicating that retail participation in US equity trading increased by approximately 50% between 2023 and early 2025, accounting for more than 20% of trading volume. The corresponding figures were around 40% in India and nearly 80% in China.
Institutional investors are not immune to these pressures. Fund managers are frequently assessed against benchmarks and peer groups, creating incentives to maintain exposure to popular investments even when valuations appear stretched. Systematic trading strategies can add to the effect, increasing exposure when volatility is low and reducing it when markets become unsettled.
Ruffer Investment Company Limited (LON:RICA) is a British investment company dedicated to investments in internationally listed or quoted equities or equity related securities
