Stock market is up — and small investors are out

The stock market has returned to normal. Share prices are back at record highs -- and small investors are selling.

After pouring into U.S. stock mutual funds early in the year, individuals have been net sellers in four of the last five months, according to data from the Investment Company Institute, a fund industry trade group.

To put it indelicately, the proverbial dumb money has been rushing out of the market just as share prices have been racing up.

The Dow Jones industrial average and Standard & Poor’s 500 index hit record highs Thursday on hope that U.S. economic growth is picking up.

The Dow is giving back a bit Friday. As of 10:15 a.m. Pacific time, the Dow was down 41.78 points, 0.3%, to 15,419.14.

Many small investors haven’t taken part in this year’s powerful rally, which has driven the Dow up almost 18%.

Individuals funneled a net $18.4 billion into domestic stock funds in January, an annual dynamic that occurs as Americans salt away year-end bonuses. Since then, however, they’ve yanked a net $12.8 billion.

That might be OK if individuals were harvesting big gains after buying years ago when the market first rebounded from the 2008 global financial crisis.

But that’s not the case. Since the market bottomed in March 2009, a net $387 billion has leaked out of domestic equity funds.

The U.S. market has been one of the best around, as Europe grapples with its sovereign-debt woes and emerging markets face economic and political turmoil.

Maybe individuals jilted by recent bond-market losses will move some of their money to stocks. Just don’t count on it.

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Follow Walter Hamilton on Twitter @LATwalter