The Dow Jones Industrial Average, still the best barometer around of the state of the US economy, this week reached its highest level since May 2008, while the technology-orientated Nasdaq Composite hasn't been as high as this since the immediate aftermath of the dot.com bubble back in late 2000.
Even more representative indices such as the S&P 500 and the FTSE All Share are racing ahead. Could it be that share prices are telling us something? Stock markets can be some of the best lead indicators around, but they are also famously unreliable. There are plenty of rallies which prove unrequited, with the economy failing to improve as anticipated.
The most notorious of these false dawns was in the aftermath of the Great Crash of 1929, when after falling more than 40pc in the initial panic, the Dow Jones then rallied sharply. Everyone rushed back in, only to lose their shirts for a second time as the stock market crashed back down again. By the time it finally hit the bottom in the summer of 1932, the Dow had lost 90pc of its value. Other, similar false rallies occurred throughout the 1930s.
The dangers of reading too much into the short-term movement of stock markets are all too apparent.
Even so, for the time being, the bulls are getting the better of the bears, so it's worth exploring why. The negatives are obvious enough. It's as plain as a pike staff that the eurozone's latest piece of sticking plaster isn't going to hold for long. Oil prices also give cause for grave concern, for we know that high oil prices, by taking money out of people's pockets that would normally be spent on other things, have a powerfully deflationary effect on Western economies.
What is more, nobody could think that the debilitating consequences of the financial crisis are now fully behind us. Cheap money alone seems to keep the whole edifice afloat. Where does the world economy look for support once the intoxicating effects of the central bank printing presses begin to wear off?
In Europe, official support for the banking sector seems only to be storing up problems for the future. Extensive use of European Central Bank (ECB) liquidity has diluted the quality of the assets used to attract market funding, creating a vicious cycle of ECB dependency that is almost bound to end badly.
And if these concerns were not bad enough, there is also the little matter of stock market valuations to worry about. Equities look relatively cheap against bonds, but that may be only because bonds, whose price has been artificially inflated by ultra-loose monetary policy, are very likely overvalued rather than shares being undervalued.
Put another way, share prices have benefited almost as much as bonds from cheap money policies, and are therefore quite vulnerable to any change in the current, zero interest rate environment.
Using the Robert Shiller valuation method - a cyclically adjusted measure that takes a moving 10-year average of historic earnings - US equities are far from cheap. True enough, they are not off-the-scale expensive, in the way they were at the turn of the century, but they are significantly above the historic average, and they are certainly at a level from which we have seen big tumbles in the past. Such valuations are only justified if you think there is further significant scope for profits growth.
You may be wondering by now where I am going to find the positives amid all these negatives. It's not easy, but stock markets are as much about sentiment as economic fundamentals, and it is important to bear in mind that all these negative risks will to some extent already be weighed in the balance. They are the known unknowns, if you like. On the whole, investors remain highly risk averse, and these are the sort of things they worry about most.
So rather than focusing on the possible downsides, we should perhaps be looking at the potential for upside surprises. Where might they come from? The most obvious source is the eurozone, whose muddling through approach to the crisis may succeed in holding the whole thing together for rather longer than conventional economic and political analysis suggests.
Perpetual crisis is not great for growth, but it is also quite plainly better than the financial Armageddon feared just a few months back. For the time being, ECB liquidity has succeeded in forestalling this more catastrophic outcome.
The longer the eurozone can keep staving off disorderly default, the more likely it is that confidence will start returning. There is a certain amount of "fear fatigue" creeping into sentiment. A backlog of opportunities, sidelined by prospects of economic meltdown, has built up, which investors and businesses will eventually grasp.
Already we are seeing the beginnings of a mini mergers and acquisitions boom. The junk bond market is returning, allowing a certain amount of leverage once more to be applied to private equity takeovers and corporate refinancing. These are all positive signs.
But the biggest potential for upside surprise is in the United States, where it is possible, and in my view quite likely, that the present economic recovery will prove more than just a pre-election flash in the pan. A self-sustaining recovery in the US, if that is what we are beginning to see, would certainly provide ample support for equity valuations at current levels. Growing energy self-sufficiency as a result of the shale gas revolution will in time remove the US as a marginal buyer of international crude, which ought to take the heat out of oil prices.
Edward Bonham Carter, chief executive of Jupiter Fund Management, reckons equity markets are likely to continue in positive mood for the next six months because of the improving economic backdrop. But he doubts the main indices will permanently move onto higher ground in the next year, in the sense of significantly breaching past all-time highs. This looks about right to me.
A more positive mood is establishing itself, but the idea that we are entering a new and sustained bull market still looks premature.
