Market pros call it the Great Rotation. That's the long-awaited scenario when investors take their money out of bonds and sink it into stocks.
It was the buzzword this month when the Dow Jones industrial average reached a record high. The idea was that investors were confident enough in the economy to shed their financial crisis fears and leave the safety of bonds.
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But it's not happening.
Money keeps flowing into bonds. Industry consultant Strategic Insight says U.S. bond mutual funds have attracted $64 billion in cash in the first two months of the year, just below last year's pace of $68 billion over the same period.
Stock mutual funds had net deposits of $76 billion through February, according to the consultancy. While that is up sharply from $14 billion a year earlier, the cash for stocks is not coming at the expense of bonds, according to more recent snapshots of investment flows.
Instead, investors are withdrawing from money-market funds, which are often used as a parking spot for cash, according to EPFR Global.
"The expectations of a big exodus from bonds are way overblown," says David Santschi, CEO of TrimTabs Investment Research, a fund-tracking firm.
A stock market crash and recession have made bonds especially appealing since 2008, when the nation was in the throes of the financial crisis. The abundance of buyers has pushed bond prices up and sent yields lower, reducing interest payments to investors.
Even with low yields, bonds will continue to attract retiring baby boomers and others who want reliable income for daily expenses. The yield on the 10-year Treasury note -- a benchmark -- is hovering under 2 percent. Other types offer higher yields. Investment-grade corporate bonds yield 3 percent and riskier "junk" bonds yield just under 6 percent.
Money-market funds, meanwhile, yield 0.02 percent.
Still, the Dow's record surge is drawing more attention to stocks.
The blue-chip index broke through its all-time high March 5 and kept climbing. It's up nearly 11 percent this year and 122 percent from its bottom in March 2009. The broader Standard & Poor's 500 index is up 9 percent and is close to breaking its own record.
Investors added $8 billion to U.S. stock funds and exchange-traded funds in February. And they're putting in more cash this month, as $12 billion flowed into stock funds and ETFs through Tuesday, according to EPFR Global.
Bond funds, including ETFs, have pulled in nearly $8 billion this month.
Much of the money flowing into stocks and bonds has come out of money-market funds. About $32 billion has been pulled out of money funds this month, according to EPFR Global.
Withdrawals that didn't go directly into stock or bond mutual funds could have gone into bank accounts, covered daily expenses or been used for other needs. Investors also could have used the money to buys stocks or bonds directly rather than through funds.
If the money keeps flowing, this would be the first year since 2006 that more cash was invested in U.S. stock funds than withdrawn from them, according to Strategic Insight
Pension funds, 401(k) plans and other institutional investors are typically the largest contributors to daily stock fund flows. But individuals also have been moving in recently, according to EPFR Global.
The market's gains over the past four years could have been larger, had individuals been investing more in stock mutual funds. In the run-up, much of the buying has come from companies repurchasing their own stock. Companies in the S&P 500 have bought $1.5 trillion since the Great Recession began in December 2007. Hedge funds, foreign investors and others who don't own mutual funds bought as well. ETFs have also attracted cash, helping to support the rising market.
There is more fuel for stocks to continue soaring. Dividend payments are headed for a record year and companies keep buying back stock. Boards approved $118 billion in buybacks last month, the largest single-month total ever, according to research firm Birinyi Associates.
Richard Peterson, a psychiatrist and founder of MarketPsych, which advises banks and big money managers, says news coverage of the Dow's run is likely luring people who had remained wary of stocks since the financial crisis in 2008. One fear gets replaced with another.
"It's the fear of missing out on a good thing," he says. "People are watching it go up without them."
David Savage, a 52-year-old manager of a demolition equipment company, is being cautious about stocks.
Savage, who lives in Naugatuck, Connecticut, makes regular contributions to an investment portfolio that includes stocks and bonds as well as real estate.
He believes the Dow could pass 15,000 by the end of the year -- that's about 3.4 percent above its Friday level of 14,512. But he plans to see where the market is in June or July before significantly changing his stock holdings.
"If I still have that warm fuzzy feeling then, my investments will stay put," he says. "If not, I'll move to less volatile stock positions."
Matthew Lemieux, an analyst with fund tracker Lipper Inc., warns that the increased investment in stock mutual funds doesn't mean the Great Rotation is coming.
At the beginning of 2011, stock funds attracted cash four months in a row, the strongest start to a year since 2006. But the cash began to dry up in the spring and summer. Investors worried about the debt crisis in Europe and a fight between Congress and the White House over raising the government's borrowing limit.
Stocks have pulled back slightly over the past week amid renewed concerns about Europe and the possibility of bankruptcy in the Mediterranean island nation of Cyprus.
At home, Congress and the White House continue to clash, unable to reach broad agreement to head off automatic spending cuts.
That's a key reason why Richard Shortt of Somerville, Mass., is sitting tight with the stocks he owns rather than buying more.
"Rather than jumping in, I'm prepared to start jumping out," says Shortt, a 68-year-old retired small business consultant. "I've learned through the last two major downturns that you don't buy at highs and you don't sell at lows."
Justin Beal, a 39-year-old municipal fire inspector from Clovis, Calif., believes the stock market will continue to remain at or near record levels in the coming months. But that's partly due to the Federal Reserve's policy of maintaining historically low interest rates through its bond-buying program, he thinks. The program will have to be pulled back or ended at some point, potentially ending the stock market's surge.
"The records don't really mean a lot," Beal says. "The average guy needs to understand that you can't be jumping on the bandwagon at the end of the rally, when it's greed that's driving the market."