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While the economic outlook is still blurred and markets may hit air pockets in 2013, it is worth noting that global equities are still trading one standard deviation below their historical valuation since 1996, as measured by a mix of six different valuation metrics.

The global dividend yield is currently 2.9 percent which is significantly above the G10 countries’ 10-year government bond yields and highlights the impressive bond bubble that investors have built up over the years. This long run unsustainable relationship between stocks and bonds may begin to change towards the end of 2013 if the global economy manages to steer clear of major bumps on the road. Investors should be cautious if they are overweight in bonds later in 2013.