NEW YORK - Don't let the record-setting climb in stocks fool you. Even though nothing lately seems to be fazing them, investment pros may be more jittery about current market conditions than immediately meets the eye.

There is clearly a flight to quality in bonds as investors fret over weakening credit and other troubles. Stockowners still appear upbeat, however; the Dow Jones industrial average has surged above 14,000 for the first time and other indices have rallied, too.

That aside, investors might not be as happy as they look. They aren't bailing out of stocks, but they certainly are choosing to put more money into safer, bigger names like IBM Corp. and Deere & Co. versus smaller, more volatile and potentially riskier stocks.

"In the last few months, investors have been waking up to large, multinational companies, while small-cap stocks have been lagging behind," said Chad Brand, who runs St. Louis-based Peridot Capital Management.

Lots of the talk on Wall Street lately has been focusing on how stocks and bonds seem to be going their separate ways. Back in February and March, the first wave of the imploding subprime mortgages sent both markets plunging.

The subprime situation has not improved since then. Last week, Federal Reserve Chairman Ben Bernanke said there likely will be "significant financial losses" associated with delinquencies on those mortgages. Some estimates are that subprime-related credit losses could be as high as $100 billion, he said.

Already lending standards are being tightened, with everyone from home buyers to corporations to those orchestrating leveraged buyouts now paying more to borrow money and facing tougher covenants.

There is plenty more for investors to weigh as well. Most notably, oil prices have surged above $75 a barrel, raising concerns about intensifying inflationary pressures that could keep the Fed from lowering short-term overnight borrowing rates soon.

Stock investors don't appear as rattled by any of this as their bond-market peers, who have been more eager to buy the relative safety of Treasury bonds in recent weeks. The benchmark 10-year Treasury note has dropped below 5 percent, pulling back from its five-year high of 5.25 percent reached in June.

In stocks, bad news might spur a one or two day sell-off, but almost immediately, shareholders are ready to buy again. That has propelled stock prices further into record territory in recent months. The Dow industrials, which crossed 14,000 last week to notch its 53rd record high since last October, has gained about 30 percent since last summer.

The Standard & Poor's 500 index also has rallied to new highs this summer, rising 25 percent since last July.

Solid fundamentals are boosting stocks, with profit growth still looking good despite a slowdown in the overall U.S. economy. There is also an issue of smaller supply of shares available at a time of high demand. All the stock buybacks and takeover activity in the last year have shrunk the amount of shares outstanding.

But the overall pace of stock buying may be masking that investors have gotten more conservative in their picks. They seem to be seeking out some safety for their portfolios much like those in the bond market.

While large-cap indexes have been rallying, the small-cap Russell 2000 index slid 2.3 percent last week in its worst performance since early March.

Research firm Bespoke Investment Group points out in a recent report that large-cap stock indices seem to be faring better than their small- and mid-cap counterparts.

In the large-cap S&P 500 index, the average stock is now 7.9 percent below its 52-week high. That tops the 9.3 percent gap from the 52-week high seen in stocks making up the mid-cap S&P 400 index, and the more than 13 percent spread in the small-cap S&P 600 index, according to Harrison, N.Y.-based Bespoke.

The attraction to larger-company shares may be happening because smaller stocks, which had led the market's gains for much of this decade, now may look overvalued.

On top of that, investors are steering away from smaller shares because they are more risky to own. Those companies "may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions," noted Wachovia Securities chief investment strategist Rod Smyth.

Also, larger companies invest more overseas, where economic growth has been expanding faster than in the United States. That investment abroad has also benefited from the weaker dollar.

Such conditions have contributed to IBM's shares rallying 10 percent since the start of July to more than $115 a share. Other large-cap stocks moving higher include Deere & Co., Exxon Mobil Corp., and Microsoft Corp.

Clearly, the sentiment in the stock market is shifting a bit. That doesn't mean that risk-taking is over, but it is certainly slowing down.

Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck@ap.org

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