Global equity markets opened both 2010 and 2011 with powerful rallies, but subsequently fell by 16% and 24% respectively, bearing out the market adage "sell in May and go away." Global equities could potentially be following a similar pattern in 2012, with an 11% gain the first quarter. However, while we think markets appear due for a pullback or consolidation, improving monetary policies and economic fundamentals should limit any decline to a normal 5% to 8% correction within an upward trending market, in our view. Consequently we have prepared our portfolios for potential market volatility by raising the quality of our equity holding and adding a modest position in gold, in contrast to the much more defensive cash and long bond strategies pursued in 2010 and 2011.

David Fuller's view Recalling the 2Q peaks in 2010 and 2011, which you can see on this weekly chart of the S&P 500 Index, a number of investors now wonder if history will be repeated.

Michael Jones gives three good reasons why he expects a lesser reaction, and I will offer one reason why we may need to recall the immortal words of Yogi Berra: "It's déjà vu all over again."

First, Michael Jones:

We see three primary fears as catalysts for the global equity market declines of 2010 and 2011:

1. A European "Lehman Brothers" would prompt another global financial crisis.
2. The US would slide back into recession.
3. Tightening monetary policy in emerging markets, especially China, would cause these key engines of global growth to slow.

Policy changes and improving economic fundamentals have reduced the odds of any of these events, in our view; thus any 2012 correction is unlikely to match the declines of 2010 and 2011.

These are good points. 1) There is little chance of a European Lehman event for at least three years because the new ECB President Mari Draghi, acting as lender of last resort, has lent over €1 trillion at 1% to recapitalise European banks. 2) The US economy avoided recession last year, with the help of QE steroids from the Fed, and Mr Bernanke has made it clear that he would provide more QE, if necessary. 3) China-led growth economies are much more likely to ease than tighten monetary policy in 2012, and have already done so to a limited extent.

The one known factor which could trouble global stock markets to the extent that we saw in 2010 or possibly even 2012 is the possibility of a further rise in the price of crude oil. Just look at these weekly charts of the S&P with a WTI overlay and also a Brent overlay. It is the surging price of crude oil which eventually drags down the S&P and most other stock market indices around the world because it so obviously weakens global GDP growth. Currently, both Brent (weekly & daily) and WTI (weekly & daily) remain firm in ranges above their rising 200-day moving averages. Currently, there is nothing to indicate that they will not move higher although releases from strategic stockpiles would postpone an upside move.