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Investors are girding their portfolios for potential stock market volatility, even as equities hover near fresh highs after logging seven straight months of gains.

Utilities are the S&P 500′s best-performing sector so far this quarter with a 10.2-per-cent gain. They have been followed by other popular destinations for nervous investors, including real estate and health care.

In derivatives markets, the gap in price between the front month Cboe Volatility Index futures contract and the VIX index itself is higher than it has been about 85 per cent of the time over the past five years. This suggests some investors expect the calm in stocks to give way to more pronounced price swings in the coming weeks and months.

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Meanwhile, the Japanese yen and Swiss franc – viewed as havens during uncertain times – have outperformed most Group of 10 currencies this quarter.

At the same time, many have grown antsy in a market that has gone 292 calendar days without a decline of 5 per cent or more, nearly three times the average since the Second World War, according to data from CFRA’s Sam Stovall. Rising valuations, ebbing economic growth and signs of speculative excess have only added to their concerns.

“It’s been a wonderful ride for U.S. equities … but moving forward we think it is going to be a little bit of a different picture,” said David Grecsek, managing director in investment strategy and research and partner at Aspiriant, which manages about US$14.5-billion.

Concerns over equity valuations have prompted Grecsek to take profits in some of his equity positions and shift some money into non-U.S. stocks, including emerging markets.

The S&P 500′s price-to-earnings ratio on a forward 12-month basis stands at 21.3, a 35-per-cent premium to its 20-year average, according to Refinitiv Datastream.

Investors next week will be keeping an eye on quarterly results from video game retailer GameStop Corp., whose wild ride this year put a spotlight on retail investors’ mania for meme stocks that some say is one sign of irrational exuberance in markets.

On the macro front, next week’s U.S. August producer price index data could provide some clues on how inflation is shaping up after July showed the largest annual increase in more than a decade.

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With the Delta variant of the coronavirus continuing hindering growth, “a lot of investors are seeing maybe some headwinds and positioning more defensively,” said Ross Mayfield, investment strategist at Baird in Louisville, Ky.

Analysts at Morgan Stanley in the past week cut their view on third-quarter U.S. gross domestic product to a gain of 2.9 per cent, from a 6.5-per-cent increase.

Some of the flows into defensive sectors may have more to do with investors hunting for yield rather than worries over an impending market crash.

The S&P 500 Utilities index sports a yield of about 3 per cent, while the yield on the benchmark U.S. 10-year Treasury note stood at around 1.33 per cent on Friday.

“The wall of worry does loom on the horizon … but the main reason defensive [stocks] are holding up relatively well is because of the income stream attached to them,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.

Mr. Sandven and Baird’s Mr. Mayfield all remain bullish on stocks, despite the market’s defensive undertone.

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History may be on their side: The S&P has held on to a double-digit annual gain in eight of the last 10 years that it rose by 20 per cent or more in the period from January through August, as it has in 2021, according to a report from BofA Global Research. The exceptions were 1929 and 1987, which were both marked by historic market crashes.

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