Investors have been running from stocks and even bonds as fast as their feet can take them, putting their cash instead in accounts that earn practically nothing but provide shelter from turbulent times.
Over the first 11 months of 2011, plain-vanilla savings and checking accounts attracted eight times the money as stock and bond mutual and exchange-traded funds, according to data from market research firm TrimTabs.
The pace accelerated to nearly 13 times from September to November, the most recent month for which data is available.
After contending with factors as ominous as the European debt crisisand as frustrating as Washington gridlock, investors have decided that the world looks best from the sidelines, despite historic efforts from the Federal Reserve to entice risk-taking.
"The real money these days is going straight under the mattress," said TrimTabs CEO Charles Biderman. "The Fed is doing almost everything in its power to entice investors to speculate in overpriced asset markets. Yet investors — particularly on the retail side — are mostly refusing to take the bait."
From January to November, $889 billion poured into savings and checking, while stock and bond funds drew just $109 billion. More money went into bank accounts even at times when the market rallied.
Most recently, investors took $9.35 billion out of equity funds — including more than $7 billion of U.S.-based funds — for the week ended Jan. 4. Stock-based funds haven't had a winning month since April of 2011, and cash in money market funds is just over $2.7 trillion, the highest level since June 22, according to the Investment Company Institute, which tracks fund flows for the government.
Biderman attributes the reluctance of retail investors to commit money to three factors: 1) an increase in baby-boomer retirees who are becoming more risk-averse in their later years; 2) an economy getting better but still struggling, and 3) worries that the Fed is running out of ammunition to stimulate the economy.
"Investors are very skittish. The last decade has really eroded American optimism," said David Kelly, chief market strategist at JPMorgan Funds. "The problem is they look at the day-to-day volatility and they just can't take it."
Kelly believes that "economic momentum" — in better unemployment numbers, housing improvement and manufacturing gains— ought to be pushing investors away from zero-earning instruments and toward risk.
But that hasn't been the way it's worked so far, with gains continuing to come on lighter trading days and losses on higher volume.
"Given all this, you need a lot of bad news to dig deeper than this, given current valuations," Kelly said.
To be sure, there are signs that investors are coming around.
Sentiment surveys are running at strongly bullish levels, indicating both the possibility that the market is a bit overbought and the idea that those who feel the market will be higher in six months are in the majority. The American Association for Individual Investors is running at 49 percent bulls against just 17 percent bears.
The most recent of the closely watched fund managers surveys from Bank of America Merrill Lynch showed bullish sentiment as well, with cash levels at their lowest point since July. Overweight ratings on U.S. stocks are at a net 28 percent, up from 23 percent in December.
Mary Ann Bartels, technical research analyst at BofAML, had been forecasting the possibility of the Standard & Poor's 500 testing as low as 935 in the coming weeks. But Bartels said Monday that positive market signs have pushed her to take that possibility off the table, though she still sees problems ahead.
"The S&P 500 is grinding higher but volume and breadth are still not confirming the rally," Bartels said in a note to clients. "We expect the market to remain range-bound."
Whether that will be enough for nervous investors is another story.
After all, the fears that have accompanied the pullback into the safety of checking and savings accounts aren't going away anytime soon. So without a positive spark, it will take some convincing to get investors to commit their money again.
As things stand, the market in fact could end the year lower, said John Higgins, senior markets economist at Capital Economics. Higgins sees the S&P 500 falling to 1,150, even if the Fed embarks on a third round of quantitative easing .
"The fillip provided by past episodes of QE was partly linked to misplaced expectations that the policy would boost the economy," Higgins said. "We think there would be greater skepticism the third time round."