One of the stock market's favorite accepted nuggets of wisdom is the notion that there's a pile of money waiting in the wings, itching to jump back into the market.
Investors should be careful what they wish for: Such a move is more likely to signal a topping-out in the recent rally than a sign that it will ignite a new run in the market.
In addition, the long-term outlook is clouded. The amount of money investors have liquid when compared with their share holdings is right around the post-World War II average, suggesting that there is no guarantee of a new wave of money into stocks as a result of a pronounced shift in investing preferences.
The S&P 500 has surged nearly 50 percent since March, and pullbacks have been shallow and short-lived. One of the reasons for the brief nature of declines is the hope that there exist legions of investors who sat out the rally and are now anxious to move funds out of safer bets and into riskier stocks.
Of late there has been an influx of money, but it's not necessarily good news. Recent experience shows that the biggest influx of money comes at the peak, according to Birinyi Associates.
It's somewhat of a reverse indicator, said Jeff Rubin, market strategist at Birinyi in Westport, Connecticut. You do want money going in, but you don't want this tremendous shift.
While it hasn't been a tidal wave, money is returning to stocks, according to data from the Investment Company Institute. For the week ended August 5, equity funds saw an estimated inflow of $5.5 billion, compared with an inflow of $3.4 billion the previous week.
In the short term, such flows can bolster heady gains, but larger bouts of optimism are often a sign markets are about to turn.
These equity valuations are pricing in a return to the old 'normal', said Rob Roy, president of Atlantic Advisors, an investment advisory in Winter Park, Florida.
Having avoided the implosion of equity prices from the peak, getting any of the upside has been helpful.
During the bull market of the late 1990s, investors did exactly this. The greatest inflows occurred in March 2000, right before the bubble popped, said Rubin. Subsequently, the heaviest outflows from stocks took place in October 2002 at the market bottom.
THE LONG-TERM VIEW
From a longer-term perspective, there have been instances when equities have benefited from a secular shift in household funds -- when a greater percentage of liquid assets are moved into equities than has been the historic case.
Such a shift occurred in the early 1980s after years of high inflation when the ratio of household liquidity to share holdings was higher than the historical average due to investor fear of equities, according to data from London-based Smithers & Co.
That change in preference, as a larger percentage of investors became comfortable with stocks again, helped kick off a bull market that stretched for nearly three decades. It dropped to lows in the early 2000s at the peak of the tech boom and investor euphoria.
Currently, investors hold about one dollar in liquid assets for every dollar in shares, which includes mutual funds. That's right at the post-war average. Unlike the early 1980s, this suggests that despite the horrid performance of markets as the economy fell into recession, investors have maintained a resilient outlook on equity markets, one ingrained from the last 30 years.
The data suggests that investors have not been lured into dramatically changing their allocation between safe and risky bets. Andrew Smithers, founder of Smithers & Co., sees no reason to expect that to change just because of a sharp rally.
It isn't money about to go into the stock market necessarily by any means, said Smithers. (Reporting by Leah Schnurr; Editing by Kenneth Barry)