Investors have a Pavlovian response to central banks. The US Federal Reserve’s first quantitative easing took months (and a government stimulus) to aid the market. QE2 worked on shares as soon as it was raised by Ben Bernanke, Fed chairman. QE3 started even earlier, helped by a European Central Bank pledge of aggressive action.

Yet, the rally in risky assets has been odd. Global shares are up 17 per cent from their June low and US equities above where they started 2008. But until late last week there was little belief in the rally, with share volumes at Christmas holiday levels.

The performance of sectors was also strange. Investors bought the most defensive shares, not the economically sensitive cyclicals that usually lead a recovery. That has only begun to change in the past fortnight, with cyclicals – such as carmakers and airlines – outperforming.

Unless the rally is thrown off course by renewed panic over Europe or China, cyclicals should keep the lead. Economic surprises would help, as Ian Harnett at Absolute Strategy Research points out. Cyclical industrials have moved relative to defensive retailers in proportion to how economic data beat or missed forecasts.

The economy will continue to be grim, with Europe in recession and the US growing far more slowly than it usually does. But this is already priced in: the Bloomberg consensus for next year’s global economic growth has dropped to 2.6 per cent, equalling July’s low. One who expects Joy Division will be delighted with Morrissey.

Even so, there is reason to worry. US shares are no longer cheap, trading at 13.7 times forward earnings, higher than the average from 1985 to 1997. Include the dotcom and credit bubbles and they look cheaper, but the bubbles are popped. Europe is cheaper but even peripheral banks are now up on the year. The weight of money on the sidelines can probably overcome valuation but shares are not cheap.

Copyright The Financial Times Limited 2018. All rights reserved.