Where’s the bullishness? US indices may be hitting all-time highs but retail investors are unconvinced, with a recent report indicating cash allocations are rising across the world.

The State Street survey, which measured investor appetite in 16 countries, found cash allocations have soared from 31 per cent in 2012 to 40 per cent today.

In the US, which has led the global bull market, cash levels rose from 26 per cent to 36 per cent – a dramatic finding, given cash shares should have automatically declined as a result of last year’s 30 per cent jump in share prices.

The highest cash allocation, at 57 per cent, was seen in Japan, indicating investors have sat out the Abenomics-inspired market boom.

Cash levels rose in all 16 countries surveyed.

Why? Investors “aren’t able to stomach” the prospect of volatility, with the 2008 crisis “burned into their memories”.

The halving of equity prices following the dotcom implosion in 2000 probably compounds this problem.

Cash levels have also remained high among professionals, as measured by recent Merrill Lynch surveys of fund managers.

Bull markets, John Templeton famously said, "are born on pessimism, grow on scepticism, mature on optimism and die on euphoria".

We're nowhere near euphoria, indicating that despite pricey-looking markets, further gains look a safe bet. No danger in boring markets Zzzzzzzzzzzzzzz.

That was the title of a recent equity strategy note, and it encapsulates the slow-moving nature of the current bull market.

Bull markets are meant to climb a wall of worry but, as Wall Street Journal columnist Jason Zweig put it, "this one has been sleepwalking up a wall of boredom".

Bears, as we’ve noted in recent weeks, portray the current calm as complacency.

The lack of fear in the markets, as measured by the Vix index, bodes ill for investors, they say.

It has been almost 50 days since indices experienced a one-day 1 per cent move.

This may be the calm before the storm, as it was in 2007.

Or maybe not. The S&P 500 went 95 days without a 1 per cent move in 1995, before storming higher over the next four years.

Similarly, there is nothing inherently bearish about low Vix readings.

If anything, volatility is likely to be higher by the time markets peak. Technical analyst Tom McClellan notes the Vix had risen to 16.5, up from the low levels of earlier years, at the time of the market peak in March 2000.

Similarly, the Vix was above 16 by the time markets topped in late 2007, having bottomed at 12 in April 2007.

Yes, an absence of market worry can be a warning of investor complacency.

However, the current calm is “not the sort of condition consistent with the major tops of the past”.

Do bears need a recession? It's been almost 1,000 days since the S&P 500 suffered a 10 per cent decline, the fifth-longest stretch in history.

Will it take a recession to trigger a correction? If economic data remains benign, should investors assume further gains?

Money manager and blogger Ben Carlson notes that markets do indeed front-run recessions. In the run-up to the last 11 recessions, he notes, indices had already dropped an average of 8 per cent.

Similarly, investors are quick to price in recovery, rising an average of 24 per cent before the end of the recessions.

However, the old joke that the stock market has predicted nine of the last five recessions has some truth.

Since 1945, there have been 13 double-digit market drops where no recession was forthcoming over the following year. This included five bear markets, with stocks dropping more than 20 per cent.

In other words, stocks can fall in anticipation of a recession, but they can also decline for countless other reasons.

“Stocks can and will fall for a number of reasons,” says Carlson. “But you have to be a glutton for punishment if your investment plan relies on your ability to consistently call these moves.”

Fancy but underperforming Almost all fund managers – 99 per cent – fail to beat market indices, and those who do pocket the profits via fees.

According to a study that looked at UK funds’ performances between 1998 and 2008, typical investors would be 1.44 per cent a year better off by switching to low-cost tracker funds.

One of the authors, UK Pensions Institute director Prof David Blake, is not optimistic that investors will heed the research, telling the Financial Times that people believe the "smart-suited fund managers with their fancy haircuts can give us the extra return they promise".

Fund managers, he said, would “come back with ‘new strategies’ that are old wine in new bottles”. The paper can be viewed at iti.ms/1rqiiXu