The Markets' Continued Climb On The 'Wall Of Worry'

With the stock major averages improving almost daily, the mood of the market is definitely on the mend. But think back... How long ago was it exactly that just about everyone on the planet was absolutely, positively sure that the stock market was going to take a dive? Remember all the talk about stocks being in the "sell in May and go away" period? And lest traders forget, the second year of the Presidential cycle has been a big loser. Traders shouldn't forget about the "mo-mo meltdown" that was supposed to drag the market into the tank. Oh, and then Russia was on the brink of starting WWIII, right?

A Very Large Wall of Worries

Thus, one couldn't be blamed for possessing a pessimistic attitude of late. Heck, even the usually upbeat David Tepper, who has an admirable track record running Appaloosa Management, told fellow hedge funders last month in Las Vegas that they should avoid being "too frickin' long" right now and that it was "nervous time" for the markets.

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Recall also that stocks came into 2014 on a roll and many thought the indices had gotten "ahead of themselves." Then a really long stretch of really crummy winter weather caused the U.S. economy to stall out. And with all the mini crises occurring, the slowdown in China, and the fact that the Fed would indeed need to remove the punch bowl at some point, many worried that the economy's soft patch would take a turn for the worse.

So, what has the stock market done in response to what has felt like an insurmountable wall of worry? Climb it, of course.

Yep, that's right; the S&P 500 has made a series of new all-time highs over the last two weeks. The venerable index has been up nine of the last 11 days and hit fresh new all-time highs seven times along the way.

Another of the bear camp's complaints has been that the S&P was going it alone in its march to the Promised Land. But don't look now fans, some of the other indices are starting to fall in line. First, there is the Dow...

Then there is the Mid-cap index, which hit a new all-time high yesterday.

And while it may not be an all-time high, the NASDAQ 100, which, of course has plenty of tech and mo-mo constituents, isn't faring too poorly right now.

Oh, and unless the bears can get something going in a big hurry, it appears that there are breakouts taking place on the NDX and Midcap indices.

Okay, okay, it is fair to admit that there are still some "issues" on the charts these days. For example, the NASDAQ is not at fresh new highs for the cycle - but the index does appear to be closing in!

Since this is turning into yet another chart-fest, it wouldn't be complete if it didn't take a look at the Russell 2000, which is where most of the damage was done during the momentum meltdown.

As one can plainly see, the IWM is still in a world of hurt when compared to the Dow or S&P. However, as has been discussed in previous missives, history shows that the high fliers don't need to "lead" the way back. No, they just have to stop going down. And the chart above makes the case that the recent downtrend has indeed been broken.

What Gives?

An awful lot of the macro-view traders must be scratching their heads right about now. While the stock market could certainly begin a decline at the drop of an algo, the bottom line is that stocks have been moving up when all the deep thinkers figured they should be heading lower. Inquiring minds want to know why.

It's the Economy...

To be sure, the state of the economy does not always drive stock prices. However, when everyone is worried that China, Europe and the weather-induced slowdown in the U.S. will kill the stock market, the outlook for the economy becomes the focal point.

Remember, it isn't about what the economy is doing. No, in this instance, it's the outlook for what the economy will do that truly matters. The bottom line is, as David Tepper mentioned on Thursday, a lot of the macro worries have dissipated.

Worries Receding

As Tepper told the SALT conference in Vegas last month, there were a handful of macro worries to be concerned about including:

• US Growth
• China's Growth
• Europe's Growth
• The Ukraine/Russia Situation

However, Tepper told CNBC's Kate Kelly on Thursday that he is now a little less nervous today. Here's why...

First, Mario Draghi made it clear that the ECB is on the case. While Draghi did not use "the Bazooka" yesterday, he did show it off a little. The ECB cut rates, moved to negative deposit rates, created more LTROs, prepared for an ABS purchase program and talked about QE if it was needed. Thus, Draghi was making good on his threat to "do whatever it takes" to thwart the credit crisis in Europe.

Next up is China. While the Chinese are not embarking on post-2008 type of stimulus programs or cutting rates in a big way, they are doing some stimulus and moving toward an easier monetary policy. Therefore, the argument can be made that the PBOC is also on the case.

While the Russia/Ukraine situation is likely far from over. It also appears that Putin isn't overly anxious to do something stupid - at least not right away. So, this concern has been placed on the back-burner.

Then there is the U.S. While the economy clearly stumbled in response to a brutal stretch of winter weather, it now appears to be rebounding nicely. As such, the dip in GDP during the quarter will likely be offset by a robust Q2 print. This is what a lot of the improvement in the stock market is all about.

The Bottom Line

The key at this stage would appear to be that the outlook for growth is not as dour as it had been. The economy is improving, earnings are improving and there is some inflation afoot, which at this point in the game, is a good thing.

So, while the current joyride to the upside could end at any moment, let's remember that stocks usually need a pretty good reason to embark on a meaningful decline. And right now there just doesn't appear to be one.

Positions in stocks mentioned: SPY,

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