After 12 months of catastrophic falls there's a touch of excitement in the air. The S&P, the index that tracks the stock market fortunes of the 500 largest US companies, including Exxon, Procter & Gamble, Johnson & Johnson and Microsoft, has risen 15% in the past two weeks, as some investors catch the first stirrings of a US economic recovery.

Stock markets, according to the historians, tend to anticipate definitive signs of an economic upswing by at least six months, and for the first time in a long time, fund managers have had something to think about.

Last week Anthony Bolton, the renowned British investor at Fidelity International, said it was time even to buy bank shares.

"I'm pretty optimistic. It's such a contrarian view when the general view is so pessimistic," he acknowledged to an audience in Luxembourg.

The remnants of the Irish bank stocks joined in too: AIB, Bank of Ireland and Irish Life last week climbed by up to 300% above the all-time lows they hit earlier this month. Then, the United States decided to do something it hasn't done since the 1960s.Buying its own debt paper – or quantitative easing, the modern, politically-acceptable way of referring to a government printing money – helped push world stock markets higher.

"It is strong stuff alright. We are going to keep a strong eye on all this," said Eugene Kiernan, head of multi-manager investments at AIB Investment Managers.

"We have a lot going on, what with lower interest rates and quantitative easing. It's not going into a black hole and some time it will have an [economic] result," said Kiernan.

The turnaround in investor sentiment was reflected in other ways too. Yale's International Centre for Finance, which since 1989 has surveyed the confidence of individuals and big institutional buyers in stock market rallies, reported a surprisingly strong belief that prices will rise over the next 12 months.

Many wealthy investors in early 2007 anticipated a stock market crash, but few now forecast more big falls in the next six months.

Other sentiment watchers, such as Khuram Chaudhry, a European chief strategist at Merrill Lynch (see panel), who for decades has tracked directors buying and selling the shares of their own companies, suggest a strong buying signal to all investors to buy stocks now, if only to hold them for a very short time.

Meantime, investors have been persuaded to "move up a notch", away from the safety of pharmaceutical and telecom firms that have little debt.

It's all heady stuff. But what happened to fears that the world was heading into a severe recession that would plunge stock markets into a 1930s-style depression?

Ronan Carr, a European equity strategist at Morgan Stanley in London, sounds that note of caution.

"Be patient and pragmatic. Do not be in a hurry. It is still not the time to move out of defensive stocks until next year," he warns.

By then the individual investor may well have missed out on the first leg of a stock market upswing but could, on the other hand, be saved from another scalding, he says.

Morgan Stanley is betting that any global stock market recovery this time will be more than a year away, and possibly more like what happened in Japan in the 1990s – long-drawn out when 'policy interventions' failed to halt excessive falls in stocks and house prices.

"Prices are not expensive, but they are not dirt cheap either. There could still be a 20%-30% fall to go. I am sure that in the early 1930s people were saying the stock prices were cheap too," warns Carr.

Meantime, Morgan Stanley favours cash over equities, prefers telecom stocks and recommends investors to continue to be light in financial and industrial stocks. In short, it is sceptical about this stock market rally.

"We would only buy risky assets that are already pricing in depression-style outcomes, not equities," it says. Wait until there are signs of a stirring, maybe the middle of next year, in the US housing market, and "don't be tempted to play bear market rallies" in the meantime, it warns.

Buy Irish But Sell Again In May, Expert Advises

A leading international stock market strategist, who correctly advised investors here to dump Dublin stocks last summer and put their money into gold instead, says it's time to buy Irish again – but only for a short time.

Khuram Chaudhry, chief European quantitative strategist at Merrill Lynch, says stocks battered by the recession, such as Irish banks, will tap a global bounce in property-related and construction shares before a second leg of the stock market downturn ensues in May.

"Even the Irish banks will likely enjoy the bounce. But sell again in May and buy gold again for the rest of the year," said Chaudhry.

The strategist famously called last summer for investors here to dump Irish stocks at a time when the full effects of the banking disaster were still not clear to many investors.

At the time of his warning early last August, the Iseq index was trading at 4,089, and AIB and Bank of Ireland were trading at just over €9 and €6 respectively.

By this weekend, despite a seven-working-day rally, the Iseq had fallen by almost 50% and AIB and Bank of Ireland were trading at 59 cent and 41 cent.

Chaudhry believes this time the so-called bear market bounce – into its second week – will last longer than the standard five or six weeks of earlier downturns.

"Since 2007, the bounce in equities has been about 20%. I think this time it will be bigger, at about 30%, and likely go longer into May when the old rules [of selling and going away] will apply," he said.

After May it will be time across Europe to switch back to ultra-defensive stocks in selected telecom and pharmaceutical companies, he said.

"The difference is that this is not a recovery. The credit cycle exaggerated the upturn but nothing has been done to resolve the unsold housing and falling prices in the US," he said.

"After May? Anything that has been out-performing in the last 12 months, you sell back out of."

Chaudhry's long-running survey of sentiment for stock market behaviour across Europe, which tracks the buying and selling of shares by so-called insiders, or company directors, in the companies they work for, correctly predicted the bear market bounce.

Directors across Europe have been buying at a ratio of nine to one: buying nine shares for every one they were selling last week.

"That is a very strong buying signal," said Chaudhry.

Directors in companies such as large telecom companies, Cadbury and International Power have been big buyers of their own shares in recent days.

"We think the rally may be a bit more prolonged. But this is not a recovery," he said.

In Ireland, Chaudhry said that even the local banks and construction firms have benefited from the global stock market rally. But he said that though he remained "downbeat", a stock market bounce through May could be an opportunity for investors to make money in the short term.

He suggested "renting" – buying exchange traded funds in the remaining Irish bank stocks – for a short period.

The Iseq's concentration of banking and so-called consumer stocks including CRH, which has replaced the previous status of the four listed banks to account for just under 40% of the capital weight of the index, will likely remain vulnerable to price falls after May, he said.