THE first week of March saw stock markets strengthen further, taking us back up through significant retracement levels for a number of major global indices. Investors cheered on a successful Greek bond auction, boosted by the country’s newly-proposed austerity measures.

Concerns over sovereign risk contagion have been brushed aside as Eurozone policymakers rally round and offer support. There was also widespread relief last Friday after the US non-farm payrolls number fell by less than anticipated. It was certainly far better than some of the horrendous “whisper” numbers that had been doing the rounds.

The Federal Reserve, the Bank of England and the European Central Bank continue to signal that rates are going to be kept low for a considerable period. There remains a desperate search for yield which could, in the absence of another financial shock, continue to support stocks.

There are plenty of issues which could contribute to a major upset, including continued weakness in US housing and employment, rising budget deficits and public debt in developed economies and the chances of sovereign (or a US state) default. However, these appear too remote for many investors to worry about and most believe that policymakers will do nothing to derail the recovery.

This lack of concern can be seen most clearly in the Volatility Index (Vix), which is the most widely-followed measure of US stock market volatility and calculates the implied volatility in the S&P 500. The index has fallen 30 per cent in just four weeks and now trades well below its previous support at 20.

The all-time high of 80 was in October 2008 but the current chart suggests that we may need to see the index get back below 10 before investors feel that risk is too cheap and insurance worth buying. Meanwhile, equities carry on climbing a wall of worry. This could see further strong gains as more investors feel they can no longer justify being on the sidelines, or more painfully, holding onto short stock positions.