This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Ignore the European Central Bank

NEW YORK ( TheStreet) -- What a difference a year makes: Twelve months ago, investors believed the eurozone was on the brink of collapse, and they seemed desperate for the European Central Bank to save the union by purchasing massive amounts of debt of the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain).

Fast forward to today: The European Central Bank hasn't bought a single bond through its Outright Monetary Transactions program, yet the union is holding together, yields are down, and, as Thursday's manufacturing PMI data show, the economy is stabilizing.

All proof, in our view, that investors' long-running eurozone collapse fears were overwrought. And sentiment is still too dour.

Investors are hyperfocused on the bank's decision to forego a rate cut on Thursday, suggesting they're still looking to the bank for salvation and ignoring the many signs of fundamental improvement. That's bullish for stocks globally.

Fact: Whether the European Central Bank keeps its benchmark rate at 0.5% or cuts it to 0.25% means zippo for the eurozone's economy.

As the bank's President Mario Draghi has long said, the bank's transmission mechanism is broken: A rate cut in Frankfurt won't impact borrowing costs and credit availability in Spain and Italy. It simply can't stimulate the areas investors believe need stimulating. Focus on European Central Bank policy is misplaced; it blinds investors to economic reality.

And reality isn't fabulous, but it still exceeds investors' expectations. Take the Manufacturing PMI, which hit 50.3 in July -- 0.2 percentage point higher than the initial estimate and the first expansionary reading since July 2011. Now, on its own, this singular data point says nothing about the eurozone's future growth. Monthly data are variable, and manufacturing isn't a leading economic indicator.

But the recent trend speaks volumes. Manufacturing edged higher but stayed choppy for several months after its July 2012 bottom, but we've now seen four consecutive months of improvement.

The composite services and manufacturing gauge, which better reflects the broader eurozone economy, tells a similar story. It, too, moved into expansionary territory in July, logging its fourth straight monthly improvement. All without an assist from the ECB.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,672.60 -141.38 -0.79%
S&P 500 2,051.82 -11.33 -0.55%
NASDAQ 4,757.8790 +7.4820 0.16%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs