Royal London Asset Management’s multi-asset team said the recent surge in global growth was “coming off the boil” and inflation pressures outside the UK are easing.
The team has reported it is “taking profits”, meaning it is reducing its positions in risk assets that have benefited from recent rises in anticipation of a possible fall.
It said while the longer-term outlook remained positive, falling business survey readings also indicated potential summer choppiness.
“Stock markets often move sideways over the summer and volatility tends to rise,” the team said in a research note this morning.
“This year may prove no exception. Negative surprises could come from doubts about the ability of President Trump to implement planned stimulus measures or signs of weaker economic activity generally.
“The upswing in stocks started amid the China devaluation shock of early 20162, so markets will be particularly sensitive to signs that tightening measures in China are starting to take effect.”
It comes after indices that aim to indicate volatility expectations on major markets have reached ultra-low levels in recent weeks, which some have suggested might indicate complacency on the part of investors.
The head of the team, Trevor Greetham, added there was no sign of a late-cycle surge in wages that could lead to interest-rate rises and end the growth seen since the 2008 recession.
“The bull market in equities has further to run and we stand ready to buy dips. An overweight position in global high yield bonds should pay off if an increase in volatility doesn’t materialise and markets simply muddle through the summer period,” he said.