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Most Hated Stock Market Rally Has Won Non-Believers

I said a couple weeks ago that this was the most hated stock rally in years; looks like everyone else is jumping on the bandwagon.

Doug Armand | Stone | Getty Images

The problem is two-fold: 1) The U.S. economy is chugging along with, at best, anemic 2 percent growth, but the U.S. stock market is near a four-year high; and 2) U.S. big-cap indexes are near four-year highs, but the Chinese market is near a four-year low.

The Chinese market is closed to foreigners, which is an issue, but you can see the main problem is the strength of the U.S. markets. No one believes it. The reason stocks are higher, the skeptics insist, is because the Federal Reserve(explain this) continues to dangle a third round of quantitative easing (explain this) in front of the market. Without it, the markets would collapse. (Read More: Gloomier Outlook, Greater Expectations for QE3: Poll.)

There is no doubt that there is a “Bernanke put” operating under the market, but how great that put(explain this) is remains to be seen. I think stock prices are higher because of it, but I don't think it is preventing the market from collapsing.

No, the reason stocks are stronger is that, while earnings growth has slowed this year, it has not evaporated. S&P 500 earnings are expected to increase 6 percent in 2012...that is slower than the 14 percent growth in 2011, but still respectable. (Read More: 6 Top Earnings to Watch This Week.)

Maybe that's why so much foreign money continues to find its way into the U.S., for stocks as well as real estate.

No, we are near multiyear highs in the stock market because corporate earnings are near record highs, and that's what matters. It's true that revenue growth is flat, and that is a real problem, but absent that growth corporations continue to find ways to cut costs and stay profitable.

Elsewhere:

1) The euro reversed its gains after the European Central Bank played down a report in Der Spiegel over the weekend that it may support caps on the bond yields of euro zone countries. Event Germany's Bundesbank, in its monthly report, again said it was opposed to the ECB's plan to resume buying bonds on the grounds that this amounts to monetary financing of governments, contravening European law. (Read More: Are Markets Bracing for Major ECB Bond-Buying?)

2) Lowe’s slides 5.9 percent pre-market after the home improvement retailer missed analysts’ estimates and cut 2012 earnings per share (EPS) guidance to below the Street’s view. This is the second time they have lowered guidance this year; it seems pretty clear they are losing market share to Home Depot. Lowe’s reported second-quarter EPS of $0.65, shy of $0.70 expectations. The building supplier lowered its full-year EPS outlook to $1.64, compared to the Street’s $1.80 estimate. Lowe’s lackluster results come days after rival Home Depot reported better-than-expected earnings and raised its outlook for the year. Same-store sales were down 0.4 percent, well below expectations, and full-year guidance is now expected up only 0.5 percent. (Read More: Home Depot or Lowe’s? Pros Pick Favorites.)

3) Managed-care stocks rally pre-market after Aetna confirms plans to acquire Coventry Health Care for $5.6 billion. Coventry shares rise as much as 20.6 percent pre-open to $42.15, topping Aetna’s offer to pay $42.08 per share for Coventry Health. Health-care stocks Health Net, UnitedHealth, and Humana all gain ahead of the open; Coventry Health is set to open at a four-year high.

This is a doubling down on Medicare Advantage...it increases Aetna's Medicare Advantage membership by about 250,000 (58 percent) and also expands their Medicaid membership.

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—By CNBC’s Bob Pisani

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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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