We think that one of the more important drivers of equity market performance is Fed policy, followed, I think in close second position, by liquidity growth.
"We think the critical drivers of equities in 2012 will be more QE [quantitative easing] by the Fed, ECB, MPC and BoJ by late Q1 and the tail risks associated with the euro crisis, US fiscal policy and Chinese housing," the broker says in a note.
Unlike Europe and the U.S., where an explosion of cross-border merger and takeover activity has been an important driver of higher equity prices, Japan has largely missed out on the party because of regulatory barriers to foreign acquisitions of Japanese companies.
The whole concept of "income" as a driver for equity investments, which moved to the forefront during the low-volatility environment, is becoming questionable at best.
Medicines are a major driver of quality, safety, equity, and cost of care in low and middle-income country health systems.
"Would I give the car keys to the drivers of Japanese equities?" Nicholas Smith, a strategist at CLSA Asia Pacific Markets, wrote in a research note.
Instead, so-called high-frequency traders at hedge funds and elsewhere are in the driver's seat, accounting for 60% of equity volume on an average day as they flood the market with thousands of orders a minute.
The Fed's purchases of $85 billion a month in bonds have been a significant driver of the rally in equities that has taken indexes to highs and pushed the S.& P. 500 up nearly 16 percent this year.
Dan Morris, a global strategist at J.P. Morgan Asset Management, said that a pullback by the Fed would be turbulent, but added, "With fundamental drivers for equities still supportive, investors should tighten their seat belts instead of reaching for the parachute".
