Goldman Sachs says while valuation alone is rarely enough to turn markets, crucially, we are now seeing tentative signs of more fundamental support.
"The ECB has started to buy Italian and Spanish debt pushing down spreads, and post the FOMC comments its economists' base case scenario now includes more QE later this year or in early 2012," Goldman Sachs equity strategists say in a note.
Moreover, the broker says, there are signs that the growth data is stabilising at a low level, although it adds that is not saying that the risks have disappeared, as it still believes there is a one in three chance of a U.S. recession in the next six to nine months.
Goldman says that post the recent fall in market prices the gap between the dividend yield and real bond yield has widened to more than 4 percent, close to the record high reached in early 2009.
And the broker says, similarly, the equity risk premium implied by current market prices is 7.9 percent on its estimates, higher than in March 2009 and circa 110 basis points higher than its macro model would suggest.
The Nikkei average resumed falling on Thursday following a rebound the day before, after rumours about the health of French banks re-ignited concerns over the euro zone's debt crisis, but declines were limited by a rise in US stock futures.
The Nikkei is hovering some 11 percent off its post-quake closing high hit on July 8, after investors sold equities due to concerns about the health of the global economy and debt woes in the United States and Europe.
Fast-moving rumours about a sovereign debt downgrade of France as well as talk doubting the health of French banks swirled in Europe caused the biggest widening in the benchmark index of European credit default swaps on Wednesday since the credit crunch in 2008.
The three major rating agencies later reaffirmed France's AAA rating, and said its outlook was stable, but markets remain concerned that French banks are among the most exposed to a worsening of Europe's government debt crisis.
European policymakers have been struggling to keep the euro zone's government bond markets from being savaged, but Wednesday's price action suggested the problems may be rapidly spreading to the private sector.
"The market is in a bit of heat-seeking missile mode looking for vulnerabilities around the world, and Europe is obviously in its sights at this point in time," said Grant Turley, senior strategist at ANZ in Sydney.