Even with September's reputation as the stock market's worst month, investors may be forced to focus on equities as the bond rally nears exhaustion.
Stock bearishness is monumental, with polls showing bulls outnumbered nearly four to one, a level not seen since just before the indexes posted their March 2009 lows.
But the market's skittish behavior doesn't mean pros are looking to get out. Instead, they're seeking havens that can withstand further turbulence.
That could mean a strong shift into traditionally defensive sectors such as consumer staples and utilities and out of riskier areas such as financials and technology.
"Defensive sectors still have strong tactical relative price trends that point to outperformance, while the cyclicals and financials still have weaker tactical relative price trends that point to underperformance," Bank of America Merrill Lynch analysts Mary Ann Bartels and Stephen Suttmeier told clients. "While this trade is no longer in its infancy, it is likely to persist, especially if the broader market corrects into the fall."
The latter point is critical to remember: With the Standard & Poor's 500 traditionally weak in September, particularly ahead of mid-term elections when it usually posts a 1.7 percent loss, broad market plays are highly risky. BofA Merrill said the likelihood is for a steeper correction—or 10 percent-plus market loss—though not a full-blown bear market.
Other major analysts are pretty much on the same page.
"We believe investors remain concerned about the upcoming mid-term elections, and are unwilling to commit additional capital to the equity markets until the tax rates get sorted out," said S&P chief equity strategist Sam Stovall. "We don't see these concerns dissipating anytime soon."
S&P has upgraded its weighting of consumer staples and utilities, while cutting its weighting of consumer discretionary and financials.
The firm also cut its rating on health care, but based that not on broad-market trends but rather "sector-specific reasons" caused by "a clouded outlook, owing to increased domestic regulation, weak drug pipelines in the face of major patent expirations and the negative impact of European government austerity measures on health care outlays."
The big difference ahead could be whether investors are content to get dirt-cheap yields on Treasurys in exchange for security, or whether they'll start to demand more for their money and wade into selected stocks after beating up the market in August.
The 10-year yield briefly crossed 4 percent on April 5 but has been on a downward spiral since then, trading most recently Tuesday at 2.50 percent, a stunning 38 percent drop in under five months.
Since then, the commonly held iShares Barclays 20+ Year TreasurysETF has gained 22.4 percent. An increasing number of analysts have been calling a bond market bubble in recent days, though the long-bond fund posted solid gains Tuesday even as the stock market climbed .
"The time to get defensive was a few months ago," said David Twibell, president of wealth management at Colorado Capital Bank in Denver. "What we have is a slow-growth economy, which is not necessarily horrible for the market, particularly when you look at valuations in this market vs. where we are in Treasurys. It's awfully hard to make a compelling argument to invest in Treasurys unless you think we're Japan."
Yet bullish sentiment was mired at 20.7 percent, against a historical average of 39 percent, according to the latest American Association of Individual Investors survey. Bears were at 49.5 percent, about 50 percent higher than the historical 30 percent average.
The percentage of bulls was at its lowest since March 5, 2009, the day before the S&P 500 hit its March 6 intraday low of 666.
Twibell thinks investors should approach the market with safety as a concern, but to look instead at dividend-paying large-cap stocks rather than bonds.
"If we can get some comfort level that the economy is slowing down, not crashing, then even if earnings estimates are a little optimistic you're still going to find some companies that are good value," he said. "It's hard to say you'd rather own a 10-year Treasury now than own a good dividend-paying stock."
Even fixed-income analysts are having harder time acknowledging that the group's returns will be tough to build on.
"The tone in the equity markets is still pretty tentative. We've had the economy pretty much fall off a cliff the past couple of months. In that respect it would suggest there would be solid demand for the safety of Treasurys," said Kim Rupert, managing director of US fixed income at Action Economics in San Francisco. "One the other hand, they're at a pretty rich price...It's a tough call."