Salient to Investors:

Shares of discount brokers are gaining the most since 2003 relative to the S&P 500, a sign that small investors are joining the 4-year bull market. Discount broker stocks beat the market by at least this much in 1997, 1999, 2003 and 2009, years in which the S&P 500 rallied an average of 14 percent from June 10 through December. Inflows into stock mutual funds totaled $108.5 billion during the last six months of 1997, $91 billion in 2003, and $12.3 billion so far in 2013.

Bulls say this shows individuals are preparing to buy shares, bears say buying by individuals who missed the rally indicates we are close to a top.

James Paulsen at Wells Capital Mgmt says when the retail investor finally gets more confident about the future, flows follow.

Jerome Dodson at Parnassus Investments said the huge run-up in stocks this year and the appearance of an improving economy getting better will attract more people wanting to enter which tends to push the market higher.

S&P 500 earnings are forecast to rise 6.6 percent in 2013 and 11 percent in 2014, while banks in the S&P 500 will rise 6.2 percent in 2013 and 5.6 percent in 2014.

James Butterfill at Coutts said trading by private investors provides no insight into the direction of the market because the inflows we are seeing are coming on the back of very low volume.

US equity trading is down 1 percent to 6.38 billion shares per day on average in 2013 versus the average of 8.13 billion from 2009 through 2012.

TD Ameritrade’s Investor Movement Index is bullish and at the highest level since June 2011.

Laszlo Birinyi at Birinyi Associates says individuals will push stocks higher as flows tend to multiply late in the rally, when gains force skeptics to capitulate, in the last ‘exuberance’ leg.

US equity ETFs have attracted $79 billion in 2013, on track to the highest annual inflow since at least 2009.

The Stoxx 600 Financial Services Index is up 12 percent in 2013 versus the 5.6 percent advance for a gauge of European banks – the last time gains in European brokerages exceeded banks by that much, in 2006, the Stoxx Europe 600 Index rose a further 14 percent in half2 2006.

Colin McLean at SVM Asset Mgmt said the inflows do not indicate the end of the rally because there is still a lot of money to come in.

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