With valuations divorced from fundamentals by the avalanche of cheap central bank credit, it's important to differentiate, both within and between asset classes, in a portfolio, advises top US fund manager Mohamed El-Erian.

Your emphasis should be on “companies and countries with both strong balance sheets and positive cash flow,” including in particular emerging economies such as Brazil, Indonesia and Mexico “where central banks are less active, but markets are better supported by solid economic and financial fundamentals.”

The S&P Dividend Aristocrats index of US companies that maintained and increased their payouts consistently over 25 or more years has grown half as much again as the wider S&P 500 index since the 2008 stock-market collapse.

“The market's message is simple: pay higher dividends and your shares will rise,” says FT commentator James Mackintosh.

“What investors really want is a secure bond-like income stream.”

According to the well-known analyst Andrew Smithers, the proportion of cash flow returned to shareholders by US non-financial companies as dividends or buybacks is now close to record highs.

Eoin Treacy's view In a negative real yield environment, such as that which most investors are currently presented with, the allure of a reliable payout capable of outpacing the devaluation of one's savings is obvious. However fears over the impact fiscal cliff related tax hikes will have on that cash-flow have spurred some investors to decide that discretion is the better part of valour. They have booked profits now so they will pay potentially less tax. This type of short-term thinking, driven primarily by a regulatory arbitrage rather than fundamental value, has a time limit. The decisions on how to tackle the fiscal cliff will have been made by January at the latest.

In such an emotionally charged environment perceptions are everything. The political parties have been making overtures to one another about possible compromises. Opinions, on how successful negotiations are likely to be, range from optimistic to depressive and everything in between. The most common conclusion appears to be that the USA will need to endure some fiscal consolidation in order to get the deficits under control.

The S&P500 has pulled back from its September high and has paused in the region of the 200-day MA over the last couple of days. It failed to hold today's earlier rally suggesting continued anxiety and an upward dynamic will be required to check the slide beyond a brief pause. A sustained move above 1425 would be required to break the short-term progression of lower rally highs and confirm a return to medium-term demand dominance.

Apple has paused in the region of the May lows near $550 for the last four days. Last week's decline represented the largest downward dynamic in the course of the seven consecutive weekly declines and can be considered climactic for at least the short-term. There is potential for some further steadying in this area but the extent of technical damage already done will probably require a period of support building before significantly higher levels can be sustained.

The FTSE-100 broke downwards from the one-month range earlier today but reversed the decline by the close suggesting at least short-term demand is returning in the region of 5700.