There's one reason why stocks are doing just fine despite worries about earnings and the economy

div > div.group > p:first-child"> Corporate earnings are expected to contract in the first quarter and fears of an economic slowdown abound. Yet the U.S. stock market is still up more than 13 percent this year. There is one reason why these opposing scenarios are developing simultaneously: an accommodative Federal Reserve.

"After this week's Fed meeting, it is clear that the dovish turn is here to stay, and this should be a sustained tailwind for risky assets," Marko Kolanovic, global head of quantitative and derivatives strategy at J.P. Morgan, wrote in a note on Thursday."This is an enormous shift in monetary policy, which we believe is not fully priced into various assets such as risk-on currencies, and Equities, Commodities, and other Value assets.

"For now, we think the easing in financial conditions is supporting the US equity market, a prevailing theme for much of the post-[Great Financial Crisis] period," Alex Timcenko, an analyst at Bernstein, wrote in a note Thursday."Seen in this context, the Q4 equity market decline is not hard to explain; it coincided with a sharp tightening in financial conditions. The subsequent YTD rebound has coincided with an easing in conditions and is also justifiable on these grounds.

However, some investors worry the Fed may not be able to shield the stock market from the next downturn, which could be around the corner. Slower economic growth"will make its way into corporate balance sheets. It will be reflected again in corporate earnings," said Komal Sri-Kumar, president of Sri-Kumar Global Strategies."Previously when that happened, the Fed was able to start a QE2 or QE3 and then reinvigorate corporate earnings. But 10 years after the last crisis, they may not be able to do that trick again."

What goes up must come down... Especially when it's a falsely inflated economy

Just matter of time

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