All wars wax and wane, and battlefields are left behind. For investors following 2009’s titanic struggle between bulls and bears, this week feels like a pivotal moment. Most binoculars are on America. The S&P 500 index has paused for breath after finally breaking into positive territory for the year. Three-quarters of companies in the S&P 500 have now reported earnings. On Thursday, bank stress test results are released.

Such has been the momentum of the bulls of late that perhaps they will overrun these events. Equity markets across the developed world have jumped by a third. Emerging stocks are on fire. Meanwhile, risk indicators are retreating. Three-month dollar Libor dropped below 1 per cent on Tuesday and its yield spread over overnight index swap rates is the lowest since the third quarter, reflecting a willingness among banks to trust each other again.

Still, investors would be wise to regroup. That is because the bulls look to be dominating a playground spat rather than an epic battle. Analysis by Hussman Funds on every market bottom since 1940 shows that for the most enduring rallies, the initial five-week rally tends to be accompanied by a strong rise in volumes. For example, in the opening spell of the 1982 bull market, volumes grew by 40 per cent. In this rally, by contrast, while prices rose the furthest during the first five weeks, volumes actually contracted.

What is more, the data overwhelmingly show that bull markets do not emerge from the heat of battle, rather they follow periods of relative calm. Most genuine rallies since 1940 began after markets fell less than 10 per cent in the final four weeks of their bear phase. There was a month of carnage (equities fell by a fifth) before this rally began. A week to reflect, indeed.

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