FTSE 100 hit its highest point for the year last week, boosted by big gains for the banks. But that was until Royal Bank of Scotland (RBS) chief executive Stephen Hester handed out a dose of reality. Unlike Lloyds he refused to speculate that the worst is over and pointed out the next two years will be poor in terms of results for the government majority owned bank. Now investors are wondering whether that’s RBS specific or whether they too have to question the reality and sustainability of a stock market rally that’s taken prices up over 30 per cent since their March lows and into positive territory for the year. The bulls of course believe that the current upside surprise in earnings will continue to dominate the market landscape in influence and perhaps we might enter a virtuous circle. Mike Lenhoff of Brewin Dolphin describes this as one where balance sheets drove growth and where growth might now drive balance sheets.<br /><br />The bears by contrast think cost cutting can only provide a one time boost to income and that rising unemployment and the continued deleveraging of consumers and financials will provide a major drag on any future top line growth.<br /><br />Then of course there’s the stimulus. Market optimists argue that part of what we’re also experiencing is the expectation of a clean handover of the baton from stimulation from the consumer (2000-2006) to the government and central banks. This though may be more short-lived than many in the bullish camp believe because the price of stimulation, regardless of whether its source is the private or public sector, holds the promise of being more of a growth inhibitor. The “price” is higher taxes and less government spending and that’s a trend that will impede growth and diminish the development of price earning ratios for stocks.<br /><br />CNBC regular Ed Kass sums up these fears: “With the debt super cycle continuing apace (but in a public sector context), the fragility and inherently unstable balance of financial terror argues, to this observer, for a not-so-benign and extremely volatile stock market future.”<br /><br />The likelihood therefore is that we’re now in an extended stock market trading range that could last for several years to come and that we’re now at the upper end of that trading range. <br /><br />Ross Westgate anchors Strictly Money each weekday on CNBC.