Judging by the number of flotations this year and the pickup in mergers and takeovers, animal spirits have returned.

Since the beginning of 2012 risk appetite has grown relentlessly. The valuation of the American stock market, as defined by the price to earnings ratio, has increased by 35pc, in a period when corporate earnings have barely grown. For the UK stock market, the equivalent figure is a rise of 39pc. This demonstrates that investors are prepared to pay higher prices for the same earnings. This trend cannot continue for ever.

Either earnings need to rise to justify these higher prices (which looks unlikely at this stage in the cycle) or share prices need to fall.

After five years of rising markets, complacency levels are reaching multi–year highs as reflected in the multi–year lows of the Vix (or "Fear") index. The axiom that risks rise while prospective rewards decline seems to have been forgotten once again.

Quantitative easing succeeded in stabilising the financial system and inflating asset prices but – as always with money printing – it has failed in its primary aim of generating economic growth, which remains low by historical standards.

David Fuller's view

We can either try to make an inspired guess as to where stock markets will peak, or to anticipate factors which could end the bull runs.  Plenty of institutional investors have already attempted to do this, while others have just stood aside due to concerns that risks are increasing faster than rewards. 

Higher valuations, an overheating economy, a surge in crude oil prices, an increase in new flotations relative to demand, or a tightening in monetary policy are some of the main factors which can end a bull run.  High valuations and an overheating economy have often caused central banks to tighten monetary policy in an effort to reduce bubbles and lower inflationary risks.   

Recently, Wall Street caution rather than Fed intervention reined in bubble characteristics for ‘new tech’ shares.  So far, the Fed has wanted to see a firm stock market because it feared recession and deflation more than inflation.  It also has an employment mandate.  The US economy is certainly not overheating and Brent crude oil has backed away from a clear upside breakout as Iraq’s production has not been seriously compromised, at least not yet.  The Fed is winding down QE but it is not talking about raising short-term interest rates.  Bond yields are not signalling an overheating economy and inflationary pressures.  Public offerings have been increasing and the giant Alibaba float will be a hurdle for the US stock market.  The S&P has risen for sixteen consecutive quarters, an event not seen since 1998. 

In conclusion, we need to pay attention, while also remembering that the initial and latter stages of a bull market are usually the most profitable.