Warnings of volatility are issued too often and I try to avoid them. Nevertheless, looking at the London Stock Exchange’s Risers and Fallers these days can make one’s eyes water. Last week I wrote a piece on rotation between different investment assets and suggested some of the bigger movements were yet to come. One week on and the pace appears to be quickening, especially in US equity markets that hitherto have been outperforming everywhere else, driven largely by momentum investing.

Take last Wednesday as an example: at one stage, all 10 of the top risers were up over 7% (5 FTSE 100 companies by 5% or more) and the bottom 10 down by 6% or more. Increasingly the same names appear in the top and bottom 10 in the same week if not on consecutive days. As October progresses yet more global equity markets are correcting (i.e. falling by 10% or more from a 52-week high). Human investors seem to be hyper-sensitive to news flow (macro or stock-specific) and, even worse, to rumour flow and then the algorithms take it from there.

However, the bigger story is about rotation on a potentially massive scale: rotation between asset types, between markets, between sectors and between individual stocks. So far in 2018, the easier moves are being made: de-risking by selling Emerging Market equities and currencies, Italian equities and bonds, UK equities, commodities and the euro. Now more difficult decisions have to be made about Oil, Gold, the dollar, bonds vs. equities, US vs. rest of the world equities and, above all, value vs. growth stocks. Institutional investors are definitely starting to rate their holdings while retail investors still seem very reluctant to abandon growth stocks. Rotation is not the same as volatility and is most definitely initiated by humans: the impact will be much greater than 5% daily moves or even 10% corrections.

Even momentum investing needs some sort of external justification and in recent years the growth prospects of a select number of US companies has been enough to keep both their prices and the overall indices moving up. However, it seems that more attention is starting to be paid to actual rather than prospective growth and in this respect Q3 earnings are clearly disappointing some investors.

It is not that the overall numbers being reported are bad: the ritual quarterly games between companies and analysts are so far resulting in most companies’ top-line sales growth and earnings per share both exceeding estimates. The trouble seems to be that the those estimates have not been beaten by a large enough margin and, even worse, the best results are in the ‘wrong’ sectors: i.e. in Real Estate and Materials but not in IT and even less in Energy. Perhaps expectations had simply got too far ahead of reality.

However, the problem with momentum investing is that once prices stop going up they usually fall quite sharply as ordinary investors realise that the smart money is already leaving. A major sell-off in US equities is never good news but value investors can allow themselves to smile as they look for the real bargains amongst the falling idols.

For the last five years it has been very hard to portray Gold as a ‘store of value’ and, of course, Warren Buffet has always been dismissive of an asset that offered no return other than if somebody gave you more than you paid for it. Gold has also been touted as a protection against inflation but that has not been put to the test for many years and the outlook remains subdued at least in the developed economies.

Treating Gold as sort of insurance policy may seem prudent or even virtuous but begs the question of what is being insured against. Looking at charts of Gold Futures and in particular at the rally this October, it may just be that Gold, having been downgraded to another asset class, is benefiting from investors’ rotating back into it after years of infatuation with Tech stocks. A more interesting line of enquiry might be to look at long-neglected gold miner stocks and see which ones have been coping better than others. Even if the price of Gold itself does not take off the new appetite for rotation may well uncover untapped value in some mining shares. Indeed, it may already have started.