Most of the time, the U.S. stock market looks to 3 factors to support its upward trend – let’s grade each of the factors:

CONSUMER SPENDING:  I grade this factor a C (neutral).

THE FED AND ITS POLICIES:  I grade this factor an A+ (extremely favorable) because the FED cannot do much more than it is doing to support the stock market and asset prices.  Concerns about the FED changing its stance spooked the stock market last week (and the bond market the last 4 weeks); but,  I believe there is only a slim chance the FED will change its accommodative policy anytime soon.  I believe the FED will take steps this week to calm the markets.  Here is why:

The economic data have improved a bit since the last FOMC meeting … But the improvement has been far from “substantial.” Growth remains sluggish and  jobs gains remain moderate.  Inflation, meanwhile, has continued to fall further below the FED’s target. Meanwhile, financial conditions have tightened since the last FOMC meeting, as bond yields have risen, mortgage and credit spreads have widened. The tightening in financial conditions appears in large part driven by worries that Fed officials will soon tighten policy.

The FED statement and projections are scheduled for release at 2 PM ET on Wednesday. Fed Chairman Ben Bernanke will hold a press conference at 2:30 PM. I’ll post a preview on Sunday, but I don’t expect any changes to policy.

BUSINESS PROFITABILITY:  I graded this factor an A (very favorable).