My wise and learned friend who is head of equity sales at a leading investment bank remained bullish earlier in the week as stocks were tumbling post-FOMC

His last post attracted a good number of comments,mostly disagreeing with him.

One swallow doesn’t make a summer, but here’s what he emailed me just now

Global stock markets end the week/month/quarter/half with solid momentum. Even if you take into account the usual window dressing, this week’s performance has been impressive, especially if you think back to this time last week. Fed governors have done a good job in various speeches over the last few days in calming investors’ fears, with notably dovish comments following Bernanke’s announcement on tapering last week.

Bond yields have retreated, with the US 10 year note back down below 2.5. The DJIA has posted three straight triple digit gains, underpinned by positive macro, particularly from the housing sector, which continues to lead the recovery, however fragile anyone thinks it is. The Fed has been using this fragile recovery to reassure that a slowdown of quantative easing will be anything but violent. Chinese central bankers have also been busy on the diplomatic front after the shockwaves from Asia early in the week; governor Zhou Xiaochuan has said the nation will maintain market stability and adjust policies accordingly.

So the market is “risk on” again, and I did highlight that even from a purely technical point of view, there was a huge buying opportunity at the end of last week/start of this week. As Chinese money market rates have fallen, so we have seen increased appetite for equities. Amid little evidence of capitulation we have seen institutions rotate out of sectors such as the Miners (and anything with Chinese exposure) and into things such as Pharmaceuticals, Industrials and Construction Materials. Anything aircraft-related remains in vogue hot on the heels of the Paris Air Show. The US$ has also had a good time of it, posting its second straight week of gains against the euro and the yen. Commodities still lag and Gold is at its lowest levels since August 2010. What Banks you own currently depends on whether they are UK or European names.

Expect a pause at the start of next week as fund managers take a breather, but then expect more long positioning to continue. The hedge funds are all long and the institutions are getting lined up the same way. There may be one or two blips along the ways, but as we have seen from Spain, Portugal, Italy, Greece and Turkey, bad news soon gets absorbed and the upward trend will continue. For the next quarter, I would suggest a summer in the sun tanning slowly and don’t get burnt!