The big money is calling a halt to the surge in stock prices.
Declines in oil and metals prices are being seen by an increasing number of fund managers and strategists as a signal to get out of riskier areas of the equity market. And that means avoiding things like Chinese IPOs and sticking to the boring stuff, like utilities.
The growing concern is that stocks had priced in an overly optimistic economic path, and the recent breakdown in commodities and shift in equities to safer industries like health care suggest a reckoning in coming months.
Ken Fisher, founder of Fisher Investments which manages about $38-billion (U.S.) in equities. is among those concerned many investors have become overconfident.
"I think expectations for the stock market are a bit on the high side," he said.
Prominent strategists at Goldman Sachs and Credit Suisse foresee better results for stocks less tied to the economic cycle. Doug Cliggott, head of equity strategy at Credit Suisse, wrote: "Gone is the U.S. equity performance profile that suggested bold optimism on growth."
Commodities have been at the forefront of the selling so far. Big rallies in hard assets such as gold, silver and oil ended in an ugly slump last week. Silver crashed 30 per cent in its worst fall since 1980. Oil, which was until recently worrying investors with its sharp ascent, fell around 15 per cent.
There are two schools of thought as to why commodities are slumping. One is that the Federal Reserve's $600-billion program to buy Treasury debt has helped investors divert funds to commodities and equities, creating a bubble in those assets, which is now starting to burst.
"Investors and market observers are divided over whether this is a big deal or not," wrote Cliggott, who wrote Credit Suisse is "in the 'it's a big deal' camp."
The other is that it is a sign of impending weakness in the economy. Copper, known as the "metal with a PhD" for its ability to act as a predictor for the economy given its wide-scale industrial applications, has hit a five-month low.
The reduced appetite for speculative investments has shown in the outperformance of defensive stocks, whose fortunes are less tied to the rise and fall of the economy.
The S&P 500's health-care and utilities sectors were the performance leaders over the last month, rising 2.9 per cent and 2.6 per cent, respectively. That's despite a 1.5 per cent fall in year-over-year earnings growth in utilities in the first quarter, the worst of the S&P's 10 sectors.
Health care, long a go-nowhere sector, has had a whopping rally. The sector has gained for seven straight weeks, and is up 14.9 per cent this year, best of the 10 S&P sectors.
Energy, down 7.8 per cent in the last seven weeks, is the worst performer in that time.
Goldman Sachs says it has become "much less confident in the near-term equity picture," exiting what it called its "top trade" in U.S. banks, and doing the same with a trade that was long industrial shares relative to consumer staples.
Cliggott sees a 10 per cent decline at the end of the Fed's so-called QE2 stimulus program - which is what happened at the end of the first round of Fed buying - as the "base case" scenario. The firm continues to recommend a short financial/long health care trade, as well as a long consumer staples/short consumer discretionary trade.
EPFR Global, which tracks fund flows, said Friday that global equity funds experienced their first outflow since mid-March.
SMALL CAPS AND IPOS
Small and mid-cap stocks, which typically lead a strong market, have started to see their relative outperformance to large caps wane. Meanwhile, momentum indicators show the strength in S&P 500 is starting to decline as well.
There are also signs of fatigue in the IPO market after a flood of Chinese IPOs and leveraged buyouts at the start of the year.
Shares of Chinese dating website Jiayuan.com fell in their Nasdaq debut, while social networking site Renren , dubbed China's Facebook, reversed all its gains on its market debut and traded below its offer price.
Goldman argues stocks have been driven further than economic fundamentals justify by heightened risk appetite. Sentiment indicators are elevated but off highs earlier in the year, while the CBOE Volatility Index , or Vix, is at pre-financial crisis levels, signs investors may be getting complacent.
However, some say there is room for the market to move higher before taking a turn for the worse.
Bullish investors point to robust first-quarter earnings. Just under three-quarters of S&P 500 companies beat Wall Street's earnings estimates and investors have pointed to sturdy revenue growth. The S&P's index of retail stocks recently hit all-time highs.
Peter Lee, a technical analyst at UBS, is expecting the S&P 500 to run to 1,400-1,450 in the summer before topping out.
Fisher believes elevated expectations will mean the market struggles through the rest of the year. He expects a sideways movement at current levels.
"We have characterized this year as more of what you'd think of as the full-spectrum-of-pickers year, whether it's someone that picks stocks, sectors, countries, or they're particularly nimble - which I'm not - at getting in and out of the market for short-term moves."
David Joy, chief market strategist of Columbia Management Investment Advisers, one of the largest U.S. fund managers with over $350-billion under management, has been cutting equity exposure over the past three months.
Joy said he started the year with a modest overweight in equities, but has cut that to neutral. That was partly a response to the impending end of the Fed's stimulus program, and partly due to the potential for disruption in the energy markets, he said.
The Federal Reserve's massive $600-billion stimulus to financial markets is set to draw to a close at the end of June. How markets will react is something of a wild card.
"As we get a little closer to the end I think you could start to see the equity market's volatility start to increase," Joy said.