Stock markets in the US are trading near historic highs after a busy start to January trading. The S&P 500 has had its best start in three years and is up 3.7% already, while the technology-weighted Nasdaq has gained almost 4% since the market reopened on 3 January thanks to good tech stock performance.

Meanwhile, the Dow Jones Industrial Average breached the 11,000 barrier last week for the first time since June 2001. "It's a very strong start to the year, " said Goodbody Stockbrokers' chief economist Dermot O'Leary. The recent gains appear to have been driven primarily by a belief that the US Federal Reserve is coming to the end of a "tightening cycle", having increased interest rates eight times in 12 months.

The good start may bode well for US stocks this year.

"Overall the macroeconomic environment for pretty strong gains in earnings is there, " said O'Leary, noting that productivity is high and recent employment data from the US has been positive.

"In the past, the end of the Fed cycle has usually been a pretty good indicator of future gains, " said Davy Stockbrokers economist Rossa White.

The Dow stands just 6% off the all-time record, set six years ago after a similarly buoyant start to trading in 2000. That proved to be the height of US corporate pride before a long, hard fall when overvalued tech stocks plummeted in value as investors realised that potential earnings bore no relation to stock prices massively inflated by dotcom fever.

Company valuations are now much less demanding, according to Pramit Ghose, head of investment strategy at Bloxham, pointing out that average price/earnings ratios (measuring the relationship between share price and expectations of future sales and profit) have actually declined in the last two years.

Ghose feels a number of US stocks could surprise investors over the coming months.

Energy stocks, unsurprisingly, have done well lately and have helped drive the recent gains. Technology firms have also done well.

"There is a feeling that the [first quarter] earnings season will be pretty good, " he said.

From an Irish perspective it is significant, Ghose noted, that Google, Microsoft and Apple (which employ some 5,000 Irish workers between them) have all begun the year in bullish mode.

Ghose said the outlook for the coming year is very positive, despite recent negative sentiment about the US economy. "It's nearly a contrarian bet, surprisingly enough, to put money into the American market. It's fashionable not to like American equities, but I think the American Market will do better than people expect."

That would be no bad thing from a European perspective, said Ulster Bank's chief economist Pat McArdle. "I don't need to remind you of the old adage that if the US sneezes, the world catches cold, " he said. With the European economy looking "in better shape than it has been for years", stock markets on this side of the Atlantic could find their sails filled by a strong tailwind from the US.

Like many of his peers, however, McArdle expressed concern about clouds gathering in the background for the American economy. The US dollar is in a relatively strong position. Despite the US trade deficit of some $66bn per month of exports relative to imports, the dollar has gained on the euro over the last 12 months.

"The dollar has seemed overvalued for four to five years now at least, " said McArdle. If the dollar were to fall sharply, European companies would feel the pinch, with exports to the US more expensive in relative terms and the cost of doing business in the Eurozone much higher for US companies.

So what could bring a sharp fall in the value of the dollar?

Some commentators, such as billionaire investor George Soros, have pointed to the US housing market as a potential trigger, if US interest rate rises over the past year cause a collapse in prices that would undermine the economy.

Just as in Ireland, rising property prices have lifted many boats in the US in recent years. The cost of any widespread downturn in US house prices would be high, indeed.

Some $600bn in cash filtered directly into consumer spending last year as a result of profits on house sales and equity released by mortgage holders refinancing their loans in 2005, according to Davy's Rossa White.

The housing market, he said, "certainly in a lot of the larger cities, looks to be stretched from a price perspective. Overall you would be positive about US equities but acknowledge that factor is there".