Not long ago the judgment reflected in bond and equity markets was that the eurozone sovereign debt crisis had put at risk the stability of the global financial system and with this the stability of the global economy. Recent action, such as the shift towards the higher beta areas of risk assets suggests the judgement has changed.

Indeed, not only have yields in quality bond markets stabilisd but a few of the eurozone's distressed sovereign debt markets - notably those for Italy and Spain - have made up some of their lost ground. With money at one percent for the three-year loans the ECB is making available through its Long-Term Refinancing Operation (LTRO) - the second of two is coming at the end of this month - there are great carry trades here. They are available too in equity markets too where yields are high and where dividends are likely to grow.

For equity markets, it is not just their underlying tone that has improved. The New Year has also seen small and mid-caps outperform large caps, cyclicals outperform defensives and developing markets outperform developed. Accompanying this shift towards more 'beta' has been a re-rating of the valuations attached to equity markets at a time when earnings momentum is fading. Looking at the corporate results and the lower beats-to-misses ratios compared to the corresponding period a year ago begs the question whether the re-rating is justified.

David Fuller's view I maintain that the stock market re-rating has been justified because people were too pessimistic a few months ago with all the talk of economic depression and a collapse of the euro; shares were reasonably cheap, and plenty of cash was on the sidelines. Monetary policy was becoming even more accommodative with the ECB commencing its own version of quantitative easing, while the USA and UK continued with their QE, and growth economies were signalling that their tightening bias in response to inflationary pressures was either ending or over.

These factors, bolstered by the prospects for somewhat better GDP growth in 2012 than the very cautious yearend consensus, are certainly capable of extending this cyclical bull market over the medium term. A majority of stock market indices are now above their 200-day moving averages which are also turning upwards, as exemplified by the DJ World Stock Index.

However, short-term risks are increasing because most stock markets are temporarily overbought. Therefore, we are likely to see a reaction and consolidation of recent gains before long. Fullermoney expects this to occur within the new uptrends because chart patterns show sufficient support building in Q4 2011 to cushion downside risk. Whether these reactions and consolidations occur simultaneously or in rotation remains to be seen but we think underlying support will enable many more stock markets to exceed their 2011 highs as the year progresses.