Data from the Investment Company Institute shows that for the week ended September 18, long-term stock mutual funds had inflows of $3.3 billion. For the week prior, inflows were $5.2 billion. (Source: Investment Company Institute, September 25, 2013.)<\/p>\n
Those who are buying stocks<\/a> now cannot see the losses ahead!<\/p>\n The fundamentals behind the rally in key stock indices continue to deteriorate.<\/p>\n Companies in key stock indices are playing tricks to make their corporate earnings<\/a> per share look better. They are buying back their own shares; and the more they buy, the better their corporate earnings per share look. In the second quarter of this year, the S&P 500 companies in total bought $122.8 billion worth of their own shares. The stock buyback activity in the second quarter was 24.2% higher than the previous quarter! (Source: FactSet, September 23, 2013.)<\/p>\n The troubles for key stock indices don\u2019t just end here. Look at the chart below. It compares consumer sentiment (green line) and the S&P 500 (red line). Pay close attention to their relationship.<\/p>\n Chart courtesy of www.StockCharts.com<\/i><\/p>\n While consumer confidence<\/a> has basically been flat, the S&P 500 has risen. The theory behind this is that when consumer sentiment is better or increasing, consumers go out and spend. As a result, companies\u2019 corporate earnings increase. This is not the case right now.<\/p>\n Last but not least, we are hearing companies in key stock indices warning about their corporate earnings going forward. So far, 82% of the S&P 500 companies have issued negative guidance about their corporate earnings for the third quarter. How significant is this? The five-year average of S&P 500 companies providing negative guidance about their corporate earnings is 62%. As a whole, the number of companies proving a negative third-quarter outlook, in numbers, makes up almost 18% of the index\u2014or 88 companies. (Source: FactSet, September 20, 2013.)<\/p>\n From my point of view, the disparity between the underlying fundamentals and stock valuations has increased to an unprecedented level. Be very careful with equities; easy money and tricks can only drive key stock indices higher for so long.<\/p>\n![\"University](\"http:\/\/www.profitconfidential.com\/wp-content\/uploads\/2013\/09\/University-of-Michigan-Consumer-Sentiment-Chart.jpg\")
<\/a><\/p>\n