The first sign of real market volatility, which started in January and tested many investors with its order to "sell everything", turned out to be a short, sharp affair that finished in the middle of February.
Since then it has been followed by a decent recovery in the local sharemarket with small hiccups in April, June and September.
However, each time a new selloff has started it's been from a higher level. And the S&P ASX 200 index is up 3 per cent this year. It is now just around 130 points from its highest level of 5587, reached on August 1.
It is trading on a forward price-to-earnings ratio of just over 16 times, so it's not cheap compared to its long-term average of closer to 14.5 times.
But the total return is respectable at almost 7 per cent.
Gauges of stock and bond market volatility by and large have stayed steady since the dramatic start to the year as the prospect of a more precarious financial climate quickly gave way to the reality of more cheap money from central banks.
With that in mind, it makes sense that the end of all that cheap money, or even the mere hint of the end it, will continue to be the driver behind the end of any ongoing enthusiasm for risky assets such as shares.
It also will be the end of the yield-play stocks such as Sydney Airport and Transurban.
Investors should guard against being lulled anew by volatility's recent return to the lower end of its trading range this year.
Big moves in shares are still on the cards and volatility's rise is expected to dominate the financial landscape over the next couple of months.
Indeed, the one asset class that Royal Bank of Scotland's chief credit strategist Andrew Roberts implored clients to buy earlier this year when he wrote his "sell everything" note – that is, high-quality government bonds – could well be the driver of the next selloff in shares.
Although it was to be a deflationary crisis that would spell the end of equities, credit, high yield and cause investors to have a horrible year, it's the so-called risk-free asset class, sovereign debt, that is on target to really unnerve investors.
With almost $US12 trillion of high-quality government bonds trading with a yield below zero, and the realisation setting in that they can't fall any further, the bond market could be about to fall to the old market mantra that dictates if something can't fall any further, it must start to rise.
On cue, Goldman Sachs and JPMorgan Chase have both come out this week to predict the yield on the benchmark US 10-year Treasury yield can climb back up to as high as 2 per cent by the end of the year.
The yield on the US 10-year bond has dipped to 1.31 per cent this year but on Wednesday was changing hands at around 1.68 per cent.
Bond traders got nervous after US Federal Reserve Bank of Richmond president Jeffrey Lacker said the Fed has to guard against any uptick in inflation. That came as the latest non-farm payrolls data is slated to be released on Friday.
If the data comes in better than expected then the rate-hike cheerleaders will get louder.
Bond yields also headed higher amid reports that said the European Central Bank won't be buying as many bonds once its quantitative-easing program is over.
QE has been the main driver behind the fall in yields to below zero.
Economists in the US are starting to think that now the US is close to full employment, expected to be confirmed by this week's labour market report, it means it won't be long before there is some pressure on inflation to rise.
That would damage investors' appetite for risk and, combined with a rise in the number of fundamental sources of volatility, think the US election, it could force another round of "sell everything".
Source: http://www.afr.com/markets/equity-markets/sell-everything-is-back-on-the-cards-20161005-grvdy2