SAN FRANCISCO -- The inferno that was yesterday's stock market smoldered today as many investors stepped away from the heat ahead of Friday's jobs report. The

Dow Jones Industrial Average

dipped 0.2%, the

S&P 500

shed 0.3% while the

Nasdaq Composite

rose 0.4%.

Today's relatively mild session notwithstanding, it does seem as if something has changed. You could feel it in the air Wednesday as the stock market soared higher in a fashion evoking memories of the bull market's heyday. The action caused myriad observers to comment: "It's like 1999 all over again."

But one key ingredient remains missing to fully revive those thrilling days of yesteryear: Eager participation by retail investors.

The Bitter Half, Reprise

A subplot in the market's advance since Sept. 21 has been the reluctance of the majority of retail investors to return to the market in earnest, as discussed

here the day before Thanksgiving. Having been burned terribly by the "buy the dip" strategy in 2000 and the first eight months of this year, many retail investors don't believe the market's post-Sept. 21 rally isn't yet another false dawn.

After taking $29.4 billion out of equity mutual funds in September, investors moved cautiously back into stock funds in October, when equity fund inflows totaled $758 million, according to the Investment Company Institute. ICI has yet to publish data for November, but AMG Data, another tracker of fund flows, estimated equity funds took in $5.9 billion last month.

Even should December prove to be a big month for inflows, 2001 is destined to show a dramatic decline in equity fund investment from prior years. Through October, equity funds had taken in just $14.9 billion this year vs. $309.6 billion in 2000 and $187.7 billion in 1999, ICI reported.

Meanwhile, money market mutual fund assets increased this year by nearly $341 billion and taxable bond funds by $70.8 billion through October, according to ICI, which recently reported money market assets stood at $2.35 trillion as of Nov. 28.

While many investing professionals no doubt believe the continued hesitancy of retail investors is a bullish sign, the time is rapidly approaching for individuals to return to the market en masse, if they are going to do so. Technicians quibble about the significance of round numbers, but the Dow having recrossed 10,000 and the Nasdaq again topping 2000 has tremendous appeal to the great unwashed investing American public. I refer not to sophisticated retail investors, including many of's

readers (seriously), but rather they of the rote 401(k) contributions, which have been increasingly earmarked for money market and/or bond funds.

"I just heard the market went over 10K?!? WOW! What brought that on???," emailed a family member yesterday. Not only a proponent of excessive punctuation, she also is an admittedly unsophisticated investor.

Dow 10,000 and Nasdaq 2000 is "certainly a boost psychologically, even if these are just short-term gains," agreed Elizabeth Rowe in Gillette, N.J., who also considers herself unsophisticated. "It gives me more resolve to continue sitting tight and resisting the urge to drastically change my investment strategy."

The point is we who focus on the market day to day can forget that investing has become an afterthought to many Americans, and a painful one at that. Initial anecdotes are mixed as to how retail investors are reacting to the market's recent move.

"My clients are very skeptical of this tech rally," emailed one retail broker at Morgan Stanley Dean Witter. "They agree with

Barton Biggs that the tech bubble is being inflated again and the stocks are way ahead of themselves."

The broker, who requested anonymity, referred to Morgan's chief global strategist (aka the "affectionate bear"), who reiterated that argument in a


interview Wednesday evening.

Conversely, another source at a retail-only shop, who also requested anonymity, reported that business at his firm is up 20% to 30% this week vs. last, as noted yesterday in's

Columnist Conversation.

"When stocks are moving, brokers get excited, and sell more effectively to their clients, who in turn get more excited because they see many of their stocks, which have been dead in the water for a year or more, actually moving up big," he said. "The momentum game is alive and well."

Alive and kicking, certainly; alive and well remains to be seen.

What Now? Little Man

"It doesn't make a difference" what retail investors do because "the market is dominated by institutions with billions to invest," according to William O'Neil, president of William O'Neil & Co. in Los Angeles. Institutions "will determine what the market does."

Hard to argue with that, but a resurgence of buying by retail investors could give the market another boost. That's the bullish spin.

The bearish spin is that what's going on is another trading rally -- albeit a fierce one -- rather than the beginning of another multiyear bull market run. I continue to doubt that a market and an economy increasingly dependent on government largess provide the foundation for a reprise of the 1990's bull market, or even a reasonable facsimile of it. Government stimuli may provide a short-term boost to financial markets but cannot replace private sector investment, which remains moribund. (Although today's

factory orders data bested expectations, nonresidential investment fell 9.3% in the

third-quarter gross domestic product report after falling 14.6% in the second quarter.)

The concern being that the mass of retail investors will get lured back into the market at just the "wrong" time again. The notion of the "little guy" buying at the top is more than just Wall Street mythology, as record inflows into equity, mainly growth, funds last year attests. This year, retail investors appear to have gotten aggressively into bond funds and energy stocks near the top of those sectors' respective rallies.

On the other hand, if we really have begun another bull market cycle destined to run for years, there should be plenty of time for investors to assess which stocks and sectors are the most attractive. That is, they shouldn't feel panicked into buying.

Thomas McManus, equity portfolio strategist at Banc of America Securities, made that point in an interview for a


Streetside Chat due to be published this weekend. Then again, he, too, is skeptical about the rally's sustainability, having recently


his recommend equity allocation to 60% from 65%.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.