Fear of the "Fiscal Cliff" is causing the biggest exodus from U.S. stocks this year as investors essentially put their money under the mattress rather than trust Congress to come up with a compromise.
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U.S. equity stock funds had a net outflow of just over $9 billion in the week ended Nov. 21, the biggest outflow for a single week this year, according to research firm EPFR Global.
The next biggest outflow was during the week ended Oct. 25, as fiscal cliff jitters rattled investors ahead of the election.
"Investors are turning tail because we have the fiscal cliff," said Cameron Brandt, director of research at EPFR. "There are going to be people cashing in as we head into this period of uncertainty."
Investors are pouring that money—and then some—into money-market funds, with that group netting $21.79 billion last week, the third highest amount of 2012, according to EPFR. The average money market account is yielding just above zero.
The expiration of tax cuts and the automatic spending cuts set to occur at the end of the year will cost the economy $600 billion, according to the Congressional Budget Office.
Some traders said the outflows may continue even if Congress comes to some sort of agreement before the end of the year. That's because any compromise is likely to include higher taxes on dividends and capital gains, at least for the highest earners.
"It's tough to pinpoint causation," said Stephen Weiss of Short Hills Capital. "Is it fiscal fears or concerns about dividends and capital gains increases?"
Dividend-paying stocks are being hit the hardest as of late with the iShares Dow Jones Select Dividend ETF down almost 1 percent in the last month, compared to a slight pullback in the SPDR S&P 500 ETF over the same time period.
To be sure, others feel the retail investor could be getting out at just the wrong time with the potential for a big rally if Congress hatches a deal.
"The anxiety relating to the cliff is largely in the market," said Tony Crescenzi, market strategist for PIMCO. "Fear of the possibility is embedded in people's minds sufficiently enough to provide a cushion against some of the anxiety that is bound to appear before resolution of the cliff, which most do not expect until the week before Christmas."
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