Is the current U.S. stock market a good place to park your money right now? The answer for me is a resounding NO. Key stock indices keep rising. Remember; the higher the expectations, the bigger the disappointments.
The global economic slowdown is deepening each passing day. As you are reading this column, there’s probably another public company giving a negative outlook for its corporate earnings or a country struggling to keep its troubled economy going. Inflation is becoming a problem as countries race to print more fiat money so their currencies deflate with the hope that manufacturing and exports will rise.
When the stocks market does well, stock advisors and analysts usually suggest investors buy into the stock market, as many are doing right now. Are they right the majority of the time? No, they are not. In fact, when stock advisors in the majority are telling investors to buy stock, it’s actually time for investors to bail out of the stock market.
While Profit Confidential was telling its readers to bail out of stocks in late 2007, I remember back then that, as key stock indices were making new highs, the majority of stock market advisors were telling their clients to buy stocks—ignoring the underlying speculative issues of the stock market and falling for the hype.
Today, more than ever, stock markets in the U.S. are highly affected by the global economy. As I have been pounding on the table about for months now, economic weakness around the world will affect the key stock indices here. About 40% of the S&P 500 companies sell their goods or services in foreign markets. There is a global economic slowdown and China, not Europe, is at the forefront of it
I have been writing about how the stock market has been rising on low trading volume, which is a bad omen for a market rally. Healthy stock market rallies are founded on rising trading volume, not declining volume.
Investors are actually taking their money out of the stock market as it rises, in what analysts refer to as “selling into the market” (bearish), as opposed to “buying into the market” (which is bullish for a stock market rally).
U.S. investors have now taken money out of actively managed U.S. stock mutual funds for the last 18months and the outflow for 2012 is on pace for the outflow recorded in 2008. (Source: Morningstar, September 24, 2012.) Money is leaving the stock market.
Aside from investors pulling money out of the stock market, the global economic slowdown accelerates and the U.S. economy definitely shows signs of deterioration (enough so that the Fed had to unveil QE3). Other troublesome issues linger for the stock market, as corporate insiders are selling their shares at a record pace (compared to insider buying), public companies are facing negative sales growth this quarter, and declining profits are becoming more prominent.
In a healthy stock market, what you want to see are companies increasing their dividends, corporate insiders showing the confidence in the companies they work for so they are buying stock in them, increasing corporate earnings and revenue, increasing stock market trading volume, gross domestic product rising, and jobs being created—unfortunately, we are seeing the opposite of each situation. Be very careful of this stock market rally, dear reader, very careful.