Stocks have hit a roadblock since the S&P 500 and the Dow Jones Industrial Average climbed to record peaks Sept. 19. Meanwhile, the CBOE Volatility Index (VIX) has risen 35 percent since then.
And the trouble may have only just begun, says Scott Clemons, chief investment strategist at Brown Brothers Harriman Private Bank.
"I'm nervous," he told CNBC. "I think investors have had a holiday from volatility for almost two years, and that vacation's about over." The VIX index fell to a seven-year low in June.
"The complacency in the market is one of the things that creates a fragility that could lead to an enhanced or exaggerated negative market reaction, on even a modest piece of negative news," Clemons said.
So how should investors position themselves?
"We're pretty defensive in the way we're approaching the market between now and the end of the year," Clemons said. "We've allowed cash in our portfolios to rise. We are happy to hold cash as dry powder in anticipation of taking advantage of that future volatility."
While Mark Hulbert, editor of Hulbert Financial Digest, is bearish on stocks for the long term, he thinks they can rise further before they fall.
"Investors’ mood has quickly soured in recent days, potentially setting up the stock market for a short-term bounce," he writes on MarketWatch.
"As a contrarian, I get uneasy when too many begin to agree. And over the past week or so, there has been nothing short of a mad rush to the exits among retail-oriented investment advisers."
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