A sell-off in the technology sector and the broad range of shares driven higher by sheer momentum over the past year or so have triggered a move from money to value stocks.
Investors who had sought exposure to the improving economic outlook through cyclical investments over the previous 18 months, pushing up share prices and leaving valuations looking extended, have switched to more realistically priced companies.
This trend had driven popular shares such as Royal Dutch Shell, British American Tobacco and National Grid to all-time highs.
But share prices also continue to trade close to all-time highs in a number of global equity markets as investors remain in a positive frame of mind in the face of mixed news flow.
Technical analysts are currently reminding investors of the old adage “sell in May and go away”.
In each of the last five bull market years, the FTSE 100 index has retreated at some point during the May-to-September period by between 7% and 13%.
There are a number of potentially negative or bearish issues which could trigger such a fall during the summer months.
The escalation in the economic cold war between Russia and the US and Europe could reverse the upward trend in share prices, and so too could any further weak data from China.
Investors are also showing concern over the potential destabilising developments in Iraq, which could result in an oil price spike and in turn hit global growth.
Although there are plenty of reasons for concern, volatility is unusually low.
History suggests shows that at this stage in the economic cycle, when interest rates and growth expectations rise, volatility also jumps.
The Vix index, known as Wall Street’s “fear gauge”, measures the implied volatility of 500 equities. It recently hit a seven-year low despite current economic and geopolitical uncertainties.
After Lehman Brothers collapsed in late 2008, financial markets around the world panicked and the index surged above 80 in the ensuing credit crisis.
A robust recovery in equities since the crisis helped by central banks pumping money into the financial system appears to have led to complacency.
Investors are being encouraged by increases in company profits and dividends and the sharp increase in takeovers and mergers.
If interest rates do stay relatively low for longer than expected, it could still leave equities as the asset of choice.
Emma Plumpton is an investment manager with Redmayne-Bentley at Huntly and can be contacted on 01466 799444