The upside for equity markets is very limited, said Peter Lucas, investment strategist at RBC Wealth Management, in a strategy summary. However, he added: “If the weak economic data is a red herring, then equities are likely to experience a recovery in the very short-term.”

Mr Lucas said that, while the risk of corrections remains, new cycle heights may be seen soon in all equity asset classes, including emerging markets, small caps and real estate, high yield bonds and emerging market debt.

The most likely cause of an equity market correction are, Mr Lucas believes, government bonds, as, according to Mr Lucas’s valuation model, they are very expensive compared with historical standards.

“I am starting to think that the catalyst for the bond sell-off could be inflation worries rather than economic growth. If that’s the case, inflation-linked government bonds will be a relatively good place to be, hence their bullish rating,” he said.

Looking at commodities, he says that gold, having already broken previous records, will keep on rising. Wheat and copper he also expects to continue moving upwards. Oil, which has as of yet not started with an upward move, “seems destined to do so shortly”.

“It is starting to look like money is starting to rotate into commodities. The more that commodity prices rise, the more that inflation will rise; the more that inflation rises, the more that investors will be encouraged to buy commodities. It was this type of virtuous circle that helped to drive commodities to stratospheric levels in 2008.  It could be about to play a similar role in 2009,” said Mr Lucas.

“Given the improving technical picture for commodities, I am upgrading industrial metals and energy to bullish from neutral," he said.

With regards to currencies Mr Lucas says, that while the US dollar might experience further losses in the short term, he expects a decent dollar recovery in the longer term.

Looking at the broader picture of the economy, Mr Lucas said that insisting that interest rates will stay low for a long time is how US and UK central bankers helped property prices to rise again, only three years after the peak in the US and less than two years after the peak in the UK.

Mr Lucas compares the UK and US efforts to those of the Japanese central bank, saying that the Japanese efforts of stimulating the economy in the 1990s by printing money was much less successful, as they always withdrew economic stimuli at the first sign of recovery, which meant that their reflation efforts were not taken seriously.

“It would appear that the Bank of England and the Federal Reserve have been more successful than the Bank of Japan in breaking the deflationary mindset that has driven the credit crunch.”

This promise of continuity by the UK and US central bankers, Mr Lucas believes, will lead to greater willingness to lend by the banks.