An easing of investor fears has pushed stocks up into a higher valuation range, marking a new chapter in the current bull market (see Weekly Chart). Despite recent events in Cyprus, detailed on page 2, we think this move is justified and reflects investors' recognition that the risks to the US economy have diminished. Nonetheless, our clients have had a hard time reconciling new stock market highs with the dysfunction in Washington. We see a logical explanation: stocks are driven by earnings, which are growing, and interest rates, which are near record lows. Additionally, stocks are moved by changes in news at the margin, i.e., when bad conditions get less bad, it tends to be good for stocks. Last summer, investors were worried about a recession in 2013 when the US fell over the fiscal cliff. Since then, US economic growth has remained positive and has recently accelerated enough to improve retail spending and job creation. Furthermore, the US budget deficit - many investors' number one concern - is improving.

David Fuller's view I would add that in addition to earnings, stocks are also driven by yield. Therefore, with the global outlook now generally perceived as less bad than during the years since 2007, and with many multinational growth stocks yielding more than 10-year Treasuries, the appeal of shares is obvious.

Additionally, too many investors focus on economies, which often have large deficits, particularly in the West. Equity investors are not buying the economies. Fortunately, many publicly traded companies have the strongest balance sheets seen for many years. These are often the antithesis of their home country governments, not least among the Autonomies which Fullermoney favours because they benefit from the global economy.