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Can the stock market peak in this cycle without the individual investor? If history is any guide, the odds are pretty low that equities will tank because investors remain net sellers of stocks funds. From a contrarian perspective, the individual investor is a useful barometer; but based on historical evidence, retail fund-flows really don't boost the market. Hedge fund trading boosts the market because they command swaths of cash.

Bond funds, however, remain the asset class of choice since 2009 with investors lunging after yield despite near-record low bond rates. Since the credit crisis, investors have shoved more than $430 billion dollars into bond funds.

Through June 30th, U.S. domestic mutual fund stock flows have seen a negative $17 billion dollars of outflows compared to a net $119.6 billion dollars of bond fund inflows. During the first half, bonds gained about 6% and stock declined 7.5%.

The table above, courtesy of Morningstar, is outdated since it's only through January 2010. But the reason why I've included it is because we've got a full picture of mutual fund flows in 2009 and 2008.

Despite a net $25.7 billion dollars of redemptions in 2009, the U.S. broader market gained more than 22%. Indeed, these and other dollar amounts are small compared to the size of hedge funds and other large institutions trading stocks daily. Yet from a sentiment gauge, rising net outflows of domestic stock funds this year can be viewed as a contrarian indicator because investors usually get their timing wrong.

The one variable bothering me the most as a bear on the economy is the fact that individual investors are not participating in the post-March 2009 rally. They're still unloading equities. In the late 1990s, individual investors purchased almost 75% of their total stock fund contributions in the last 24 months of the bull market, which ended in March 2000. In other words, stock fund sales came largely towards the end of the party.

The same phenomenon is probably going to happen to bond funds. The ongoing avalanche of net inflows since late 2008 will draw to a violent end eventually, just like the previous bubble in technology stocks did in the late 1990s.

The massive and seemingly never-ending tidal wave of bond fund inflows is indicative of a bubble in fixed income securities for no other reason, except the trends underway in bond mutual fund flows. The individual investor is a good leading indicator of trends, which always become overbought and, ultimately, violently discredited. If this is the case, then stocks are not about to crash again but, at some point in the future, bond prices will.