(Bloomberg News) The Standard & Poor's 500 Index's best start in 25 years is doing little to restore Americans' confidence in the stock market.

The benchmark gauge for U.S. shares has climbed 6.9 percent in 2012, the most since it rose 14 percent to begin 1987, data compiled by Bloomberg show. It traded at an average of 14.1 times earnings since the start of 2011, the lowest annual valuation since 1989.

More than $469 billion has been pulled from U.S. equity mutual funds over five years and New York Stock Exchange volume slipped to the lowest since 1999.

Pessimism is taking a toll on the securities industry, where more than 200,000 jobs were lost last year, even as U.S. unemployment declines as the economy accelerates. Sentiment is the worst since the early 1980s, when 17 years of equity market stagnation gave way to the biggest rally in history.

"Investors are scared to death," said Philip Orlando, the New York-based chief equity strategist at Federated Investors Inc., which oversees about $370 billion. "The fears are justified, but from a valuation standpoint the market has overshot, as it typically does. We've been pounding the table to put money into equities."

The Standard & Poor's 500 Index rose 2.2 percent last week to 1,344.90 after U.S. unemployment fell to the lowest level since February 2009 and manufacturing grew at the fastest rate in seven months.

Companies whose shares dropped at least 20 percent last year helped lead the gain, with Whirlpool Corp. climbing 26 percent, Genworth Financial Inc. rallying 17 percent and Cummins Inc. increasing 13 percent.

Three-Year Rally

Sentiment has deteriorated even as the S&P 500 rose 99 percent since March 9, 2009. The 106 percent expansion in U.S. earnings during the last nine quarters, the most since 1987, helped fuel the rally. For the period ended Dec. 31, 67 percent of companies in the S&P 500 beat analyst profit estimates as earnings advanced 3.3 percent.

Investors pulled money from mutual funds that buy U.S. stocks for a fifth year in 2011, the longest streak in data going back to 1984, according to the Investment Company Institute in Washington. Withdrawals were $135 billion last year, the second-highest total after 2008, the ICI said.

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