A chief Wall Street strategist explains why the real story behind the market's rally may be the improving economic data, not the Fed

• Morgan Stanley's Andrew Sheets says the market rally has less to do with the actions of the Fed and is more about economic data trends improving.
• The chief cross-asset strategist said in a Morgan Stanley podcast that "the last three months have been one of the best runs of economic data" he's ever seen.
• "This improvement, rather than any new policy that central banks have been enacting, might be the real story of this summer's strength," he said.
• But he called this a "double-edged sword," because if economic data slows in the fall, Fed policy may not be enough to hold markets up.

• Visit Business Insider's homepage for more stories.

While many economists point to the Fed's low interest rate policy to explain the stock market's rise upward despite the seemingly weak economy, Morgan Stanley's chief cross-asset strategist said he believes better-than-expected economic data may be more responsible.

"As much as the steady rise of markets seems disconnected from the conditions in the real economy, I'd argue that actually they're more closely related. And going forward, that is a double-edged sword," Andrew Sheets said in Thursday's episode of the Morgan Stanley "Thoughts on the Market" podcast.

The strategist explained that while economic data has been weak, the trend has been improving and numbers have continued to surpass consensus expectations.

Read more: A fund manager at a $629 billion firm lays out his strategy for 'making money at the expense of machines' during the stock market's sell-off — and shares 4 sectors he's betting on

"Based on a number of different ways to measure this, the last three months have seen one of the best runs of economic data, relative to expectations, that we've ever seen," Sheets said. The podcast was recorded before the US unemployment rate came in Friday at 8.4%, lower than the 9.8% projected by economists.

He added: "This improvement, rather than any new policy that central banks have been enacting, might be the real story of this summer's strength."

However, this means that if data slows or stalls in the fall, markets may follow downward, even if interest rates are kept low by the Fed, said Sheets. But if economic data continues to exceed expectations, markets could continue to reach higher.

"In short, economic fundamentals still matter, even in a market like this one," Sheets said.