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The Investment Company Institute (ICI) just released its latest "Weekly Estimated Long-Term Mutual Fund Flows," and the data isn't pretty. It appears retail investors are thanking the Fed for its open-end quantitative easing announcement by accelerating redemptions from equity mutual funds. In the two weeks immediately following the Fed's most recent QE pledge, outflows from equity mutual funds soared from the two weeks prior ($12.612 billion for the two weeks ending 9/26/12 versus $6.819 billion for the two weeks ending 9/12/12).

In fact, the third quarter ended with a bang as September's total outflow of $19.431 billion was the highest of the year, narrowly surpassing August's $19.195 billion outflow from equity mutual funds. September also marked the 17th month in a row of outflows from domestic equity mutual funds and the 26th out of 29. I do not think it is a coincidence that the awful streak of outflows dates back to that fateful day in May 2010 when the Dow Jones Industrial Average and S&P 500 each plunged by more than 8% (much of that 8% happened in a matter of minutes). Prior to the 'Flash Crash' of May 6, 2010, domestic equity mutual fund flows recorded gains in 7 of the previous 13 months. That is not stellar, but it is nothing like what we experience nowadays.

Also of note from ICI's most recent fund flows data is that during Q3 world equity mutual funds experienced their first quarter of outflows in 2012. In the two weeks after the Fed's announcement outflows more than tripled from the two weeks prior ($2.770 billion versus 787 million). Perhaps investors realized that nothing has been fixed in Europe and decided to take advantage of the rally by selling indices like the MSCI EAFE Index (NYSEARCA:EFA), which is loaded with European exposure. Or maybe the continued slowdown in China prompted investors to sell any strength in the MSCI Emerging Markets Index (NYSEARCA:EEM). The one thing that is clear from the fund flows data is that retail investors were selling stocks and buying bonds.

Fund flows into bond mutual funds were once again nothing short of stellar in September, topping $29 billion. September was the 13th month in a row of inflows into bond mutual funds and the 40th month out of 44. In the first nine months of 2012, inflows into bond mutual funds topped $237 billion, almost double the total for all of 2011. As someone who searches for value in the fixed income markets on an almost daily basis, I must say that I did not find a whole lot of it in September. There were selective opportunities in high-yield bonds as well as in the lower reaches of investment grade bonds, but those existed on an individual bond basis. If you are an investor desperate for yield and turning to bond funds, you should remain very patient at today's prices.

In terms of equities, the fact that retail investors are selling strength is certainly a paradigm shift that must be quite frustrating for some financial professionals. After all, Wall Street firms have historically been able to sell their stocks to retail investors as the market rises. Perhaps, this time around, the high-frequency trading computers can play the game of pass the hot potato (stocks) long enough for retail investors to return to the markets. But with reasons galore to distrust the equity markets, I suspect it will be a long time before confidence and trust are restored among the investing public.

Disclosure: I am long HYG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.