Can markets sustain themselves once ‘life support' is turned off?

In a post-Great Moderation world, changes in the real economy have become a much bigger contributor to market volatility. Since March, this has worked in favour of investors as the global recession has shown signs of ending more quickly than first expected.

All stock markets have demonstrated a noticeable improvement over the past two quarters, although we should remember that the starting point was extremely low. While government-backed economic stimulus has been effective enough to prompt a significant turnaround, questions remain as to what will happen once the life support system is switched off and markets are left to fend for themselves and, especially whether a self-sustaining dynamic will take hold. US consumer spending remains pivotal in determining the pace of economic recovery, and in answering the sustainability question. Con...