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Why Are Markets Holding Up So Well?

Gregor Schuster | Getty Images

Trading midday Monday: volume light, advance/decline line even, Dow Industrials trade in a narrow, 80-point range.

Well, this is a bit anticlimactic. Even though virtually everyone has adopted the "it doesn't matter what happens to Greece, the euro is breaking up" mantra (wonder what all these pundits are going to be talking about for the next two years, now that everyone believes this is a fait accompli), the markets are acting like nothing particularly important is happening.

But this could be a telling week: the G20 meeting and the Fed meeting could either validate the bottoming fishing, or dash those hopes.

Why are things holding up? "No one wants to be caught short" ahead of the Fed meeting is the most common answer I received.

"Stay long, but with downside protection," was another common refrain, along with, "The US is the best large cap market: we will catch cash from abroad for the next few years."

Still, there are some who think the Fed is not ready to push the button, either because of election issues or because the data still is not compelling enough.

There is a substantial school who believe that none of this will matter: that further easing will not make a difference. No would announcing that they will keep rates low until, say, 2015 instead of 2014. "The Fed can't stimulate confidence," as one trader said. What would?

Art Cashin this morning floated the idea that the Fed should consider expanding their inflation target from 0 to 2 percent, to 0 to 4 percent.

That's an interesting idea. By signaling that the Fed will tolerate higher inflation, you would certainly move commodities and global growth stocks: materials, energy, industrials.

Meantime: what about an end of the quarter rally? There's a lot of scared money hiding in the low-beta names. The big market mover this quarter have been Utilities and Telecoms.

Utilities and Telecom as market leaders? You gotta be kidding me. They are among the weakest sectors in the market in terms of 2012 earnings growth: minus 4.8 percent for Utilities, minus 0.8 percent for energy, up 0.4 percent for Telecom. Ugh.

And they are overpriced: the S&P is trading at 12.7 times 2012 P/E ratio. Telecom: 20.6! The highest of any sector. Utilities: 15.4!

What about rotation into the most beaten up groups this quarter: energy, materials, financials? At least you can argue that Energy is cheap, at 10.3 times earnings. Materials: 12.9. Slight premium. Financials: 11.1, slight discount. Close call there.

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  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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