Reasons for a Melt-Up

Quick, easy reasons that, despite macro- news/reports that the economy has slowed considerably over the past 6 months, the market will slowly and methodically melt-up and approach that 1250 year end goal stated by GS:

(1) Fund managers are trailing. After playing defensive, many fund managers missed out on the 7% S&P gain in July and now trail the index in terms of fund returns. This is their business mind you; if you can't beat an index, what are you worth/offering clients? So look for a bullish bias, allowing managers to double down and leverage their way to stronger gains in playing catch up with the market.

(2) Only 1 factor matters now -- quantitive easing by the Fed Reserve. The markets have started to believe that the Fed will step in and provide additional liquidity and money flow to the economy. It doesn't have many bullets left but it has some. These options might have significant consequences down the road but for now, similar to early 2009, the markets view easy money as equivilent to easy gains. This alone matters over macro- reports to the negative and expectedly poor jobs growth.

(3) The markets continue to verge on breaking the 200 day moving average around 1113 on the S&P. This is the third attempt by the markets and I think the momentum may carry it through. A fourth attempt is very rare and this just doesn't seem to be the atmosphere where the third attempt would fail and cause a return to S&P 1000.

(4) Low volume -- markets don't have conviction and may not need it. Indeed, a healthy skepticism may encourage markets to rally (again, think 2009 where many, myself included, felt the rally was unwarranted).

Granted, these aren't factors that really speak to the fundamentals of the economy, but avoiding the vicious cycle of self-perpetuating bad news and economic slowdown certainly has significant importance as well. The generades that could ruin these rallies, but which are presently unexpected... a very very very poor jobs report, European debt crises news, and/or Chinese economic growth slowdown. Oh, and of course, if the main premise proves false - that the Fed is not yet going to engage in monetary easing. The Fed's meeting on Aug. 10th should provide some insight/direction to that question.