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THE collapse of global bond yields and energy and raw material prices has in the main failed to ignite equity markets.
Despite the overwhelming majority of bullish predictions from fund managers, investment bankers and other market pundits this year, most markets have been trading erratically for months.
The exceptions were the German and French equity indices which recently rose to 12-month highs because of minuscule sovereign bond yields, the weak euro and hence export gains, European Central Bank (ECB) quantitative easing and hopes of detente with Russia.
Despite the rallies, however, the German stock market is only matching its 2007 peak and the French market remains well down from those heights. Except for a sharp decline in October, London's FTSE100 index has traded between 6,200 and 6,900 for 19 months, mainly because of weak energy and mining stocks.
Both the Dow Jones Average and the S&P 500 have risen above their 2007 peaks, but for several months, except for the downturn in October, the sideways trading range was around 5 per cent.
"What all this back and forth in the last four months has done is keep the indicators sloshing around," said Helene Meisler, an independent technical analyst. "I suspect we will only see investors and traders opt to get truly bullish or bearish if and when we break out of the range."
"The enormous drop in bond yields has enslaved savers," added Doug Kass of long-short hedge fund, Seabreeze. "When rates are this low, normal rules no longer apply . . . When central bankers make risky assets seem less risky, their actions contribute to more risk."
Most pundits have maintained that the drop in oil and other energy and commodity prices would lower the raw materials cost of businesses and boost profits.
The fall in petrol and other energy costs would also raise the spending power of consumers. Instead, lower energy investment has offset higher consumption and global oil producers have also been hurt.
The higher US dollar has also dampened profitability of US multinational companies. According to CNBC data, the vast majority of companies and analysts have downgraded earnings forecasts for the coming year.
There are also persistent fears that negotiations between the left-wing Greek government and the "troika" of the ECB, European Union and International Monetary Fund will end in crisis. Meanwhile, geopolitical concerns include the very real possibility that Iran, which has raised its influence in Syria and more recently in Iraq, will obtain a nuclear warhead. ISIS' murder of the Jordanian pilot could precipitate a battle with Jordan. Finally, there are fears that the war in Ukraine could accelerate.
These worries and lower earnings expectations in the US have discouraged investors from buying equities at levels which are historically expensive. US fund managers have been tipping European shares on the grounds that the euro and sterling are cheap and that foreign currency profits will be higher.
Dealers believe that they are talking their book. A high proportion of US fund managers rushed into European markets in 2013 and early 2014, so the decline in the euro has damaged performance.
Moreover, latest European corporate results have been disappointing. EPFR, which monitors global funds, estimates that some US$21.3 billion flowed into bond funds, despite the paltry yield, in the week ending Feb 4.
To counter market risks, billions of dollars have also shifted into "balanced funds" which invest in both bonds and equities, said EPFR.
"2014 will likely go down as a year that fooled many smart investors who make their living by market timing," said Michael Wilson, chief investment officer at Morgan Stanley Wealth Management. "In fact, so far, doing nothing, staying invested and riding out the volatility has turned out to be the best course." He warned, however, that "corrections are born from complacency and end in fear".