Stocks are rallying sharply Thursday in response to the latest iteration of a European Central Bank rescue plan. As laid out by ECB president Mario Draghi, the central bank will begin purchasing the bonds of member nations on the condition that the countries submit to outside fiscal oversight. Dubbed "Outright Monetary Transactions", or OMT, the program would be transparent, strictly conditional and designed specifically to reduce catastrophic meltdowns caused by spiking yields.
To which market bears are saying "so what?" OMT is just another program by another central bank. It's a promise to do something without actually doing it, much in the manner of Quantitative Easing 3 in the U.S. As skeptics see it, this is barely worth discussion let alone cause to take the S&P500 to 52-week highs.
The bearish thesis runs into trouble with any improvement in the ECB. Earnings in the U.S. are slumping in no small part due to global economic weakness. Even with China slowing precipitously, simply slowing the rate of decline in the European economy would be enough to raise the earnings outlook for the vast majority of corporate America.
Today's market move is not simply bears getting shaken out of positions. Stocks are moving higher because investors on the sidelines are rushing into the market. Buying is across the board with old school blue chips like Disney (DIS) and Smuckers (SJM) pushing to all-time highs, and Hershey (HSY) nearly there. No one got caught short a jelly company. Hedge funds haven't been leaning against chocolate and Avengers. This is actual organic buying by slow-moving participants.
Tomorrow is promised to no one. A weak Non-Farm Payroll number in the morning could unwind a good chunk of these gains in an instant. That said, shorting stocks on the dark hope that things will get worse than they already are is a horrific investment thesis. Mario Draghi and the ECB sparked a rally that's picking up steam as of midday. Shoot against it at your peril.
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