Small investors missing as market has risen

For more than three years ordinary investors disgusted with wild market swings have pulled money out of stocks.

They've missed a breathtaking bull market: The Dow Jones industrial average has almost doubled from its low point during the Great Recession on March 9, 2009.

In the meantime, corporate America has racked up double-digit profit gains. If investors valued stocks at normal historical levels based on profits, we would be celebrating Dow 15,000, not Dow 13,000.

But the profit explosion is over, and the Wall Street pros who trade stocks mostly for big institutions and the rich are getting antsy. They've been doing the buying. And if Main Street doesn't join them, the historic rally could slow or even end.

Everyday investors "are more aware of the risk of the market," says Howard Silverblatt, senior index analyst at Standard & Poor's. "They're nervous. They're scared."

The Dow closed above 13,000 last week for the first time since May 2008, four months before the financial crisis. In a sense, the milestone was disappointing: Profits are at an all-time high, yet the Dow is well below its record of 14,164, set in October 2007.

Jeffrey Kleintop, chief market strategist at LPL Financial, one of the nation's largest brokerages, thinks the market won't reach a record anytime soon. First, "people need to embrace stocks," he says. "Maybe next year."

One measure to watch is the flow of money in or out of U.S. stock mutual funds. From June through January, investors pulled $137 billion more from these funds than they put in, according to Strategic Insight, an industry consulting group.

The refusal by ordinary investors to buy stocks is even more surprising when you consider how little they're making from the alternatives. Their favorite assets of refuge -- CDs, money market funds and U.S. government debt -- don't even throw off enough interest income to compensate for inflation.