We have seen the biggest stock market rally in history over the last 6 months, all the while, the economic fundamentals continue to fall apart. ZeroHedge.com has a pretty good answer for why it’s happening as discussed in Correlation Of S&P 500 Performance With Fed Monetization Activities Since Start Of QE:

The chart below requires no substantial commentary suffice it to say that since the launch of the Fed’s Quantitative Easing, aka Monetization, program, the value of the Total Securities Held Outright on the Fed’s Balance Sheet has increased by $917 billion- from $584 billion to $1.5 trillion. This has been accompanied by an almost linear increase in the S&P 500 Index, from 721 at QE announcement on March 18 to 1033 yesterday.

Chart Source: ZeroHedge.com Data Source: Federal Reserve

My Comments: The Fed, and more recently the Treasury, have recently announced that they will end QE and stimulus programs in October now that we are out of recession and in recovery. Perhaps the stock markets will hold up for a while (though we are kind of due for a correction), since we should continue to see improved GDP numbers for the 3rd quarter of this year, but the 4th quarter numbers may not be so pretty. It’s likely the Q4 retail numbers and consumer spending numbers will be abysmal. We don’t expect the stock markets to hold up past Jan/Feb of 2010, at the very latest. After the next crisis/crash/correction in equities markets we’re willing to bet that the American taxpayer will be strapped with billions trillions more in stimulus, bailouts and Quantitative Easing.

Read additional analysis on this chart over at ZeroHedge.com