The S&P 500 has started the year up 5.4% and closed last Friday above 1500 for the first time in over five years. It is among the best global performers so far in 2013, as many of the world's other stock markets pause after outperforming the US in the fourth quarter. We do not think this pace is sustainable; extrapolating a 5% monthly performance for 12 months would result in gains of 80%, which we view as highly unlikely in our baseline expectation for 1.6% US GDP growth in 2013. Furthermore, we are beginning to see extremely optimistic sentiment and overbought signs from shorter term market indicators, which, while not historically negative for stocks on a three-month to one-year basis, suggest shorter-term caution. This, while we see no reason to reduce stock exposure, we think new money many have a better entry point in the next several weeks.

David Fuller's view I think we are quite likely to see reactions and consolidations in most stock markets over the next few weeks. However, performances will vary, as always, and I would not be surprised to see additional gains over the medium term. The main reasons: 1) improving overall sentiment as the more bearish forecasts have not been realised; 2) a continued positive monetary tailwind from low interest rates and QE; 3) a drift away from long positions in government bonds of heavily indebted economies has commenced as yields range higher.