The most important ingredients for rising stocks prices are not corporate earnings and global economic growth. Instead, the key elements are interest rates, inflation and sentiment along with help from government fiscal and tax policy.

Right now, we are living in golden times for the "Big Four:" Inflation is low, interest rates are very low, governments around the world are pouring money into the economy and sentiment is still well below bull market peaks. Historically, analysts at independent BCA Research say, this is the environment in which stocks prices have done their best.

As long as a recovery remains anemic with lackluster job growth, it remains the subject of tender mercy by policymakers desperate to placate an unhappy electorate. And so it is weakness that keeps the government from withdrawing assistance by applying higher interest rates, raising taxes and halting loan support programs.

The recent fall in China stocks is a perfect example of this theory in action. The declines come amid new evidence of economic strength. Traders were spooked by Beijing's efforts to tighten runaway loan growth and tighten monetary policy — not by any evidence of economic weakness.

And remember that rocket launch out of March was fueled in part by the U.S. Federal Reserve's announcement it would directly purchase $300 billion worth of U.S. Treasury debt through its Permanent Open Market Operations. Is it any coincidence that stocks are beginning to weaken as that initial allocation begins to run dry? According to my calculations, more than $276 billion has already been spent. At current spending rates, the remaining funds will only last another two weeks or so.

My guess is that a new allocation will be announced after the next Fed meeting on Sept. 23, especially if the stock market remains on shaky footing. More easy money, along with continuing signs the global economy is moving slowly in the right direction, will likely reenergize the bulls later this month. As shown in the chart above, Credit Suisse Group AG (NYSE ADR: CS) economists are projecting a synchronized global recovery in which it will take nearly a full year for global gross domestic product (GDP) to recoup its losses – the weakest recovery in the three global recessions since 1970.

If recovery is indeed drawn-out, this is paradoxically great news. It seems backwards, but a long, slow, U-shaped recovery is exactly what investors should want to see. The robust, V-shaped economic recovery that politicians seem to want would be the worst possible thing to occur.

The Week in Review

Stocks jumped higher on Friday in spite of a slightly weaker than expected jobs report. A brief dip into negative territory during early trading was quickly reversed before the major indices finished near the session highs. It was the largest victory for the bulls in two weeks and hit bears like an elbow in the face after they had achieved a 4.6% multi-day decline through Wednesday.

The Dow Jones Industrial Average gained 1%, the Standard & Poor's 500 Index gained 1.3%, the Nasdaq Composite Index gained 1.8%, and the Russell 2000 gained 1.4%. Over the last two days of the week, the S&P 500 was up 2.2%.

Volume was light, with slightly more than 1 billion shares trading on the New York Stock Exchange (NYSE: NYX) – the lowest level of activity since the middle of August. This is typical behavior heading into a long summer holiday weekend, as traders leave the office early to prepare for a few days off.

Bulls obviously weren't distracted by their vacation plans: Breadth was positive, with up volume accounting for 86% of total volume. Buying power jumped four points while selling pressure fell five points, providing more evidence that the recent pullback has been driven more by a withdrawal of buying interest than a resurgence of short selling and profit taking. This is one reason we believe the current decline will be limited in scope and should be taken as an opportunity to add to long positions in the context of a new bull cycle.

All of the major sector groups finished in the green on Friday. Industrial and consumer discretionary stocks led the day. General Electric Co. (NYSE: GE) gained 3.1% while heavy equipment maker Caterpillar Inc. (NYSE: CAT) gained 2.4%. Resorts and casinos caught a bid Friday, with Las Vegas Sands Corp. (NYSE: LVS) rising 8.2%, Wynn Resorts Ltd. (Nasdaq: WYNN) rising 5.9%, and MGM Mirage (NYSE: MGM) rising 5.5%.

Airline stocks were also big movers Friday after Southwest Airlines Co. (NYSE: LUV) reported a slight increase in demand for August as businesses relax travel bans and vacationers return to the skies.

Technically, the bulls were able to fend off the bears after Tuesday's big 90% down day – but they haven't exactly covered themselves in glory either.