After a brutal third quarter in which the United States saw an unprecedented downgrade of its credit, many weary investors are staying on the sidelines.

Despite encouraging signs about new unemployment claims in recent days, uncertainty remains as the continuing European debt crisis threatens to erode an already fragile economic recovery in the United States. Meanwhile, investors fear that failure by the congressional "supercommittee" to reach a deficit-reduction plan by this week's deadline could further hurt consumer confidence, especially as the crucial holiday shopping season begins.

Investors have "very little confidence in the markets," said Douglas G. Ober, chairman and chief executive of closed-end mutual funds Adams Express Co. and Petroleum & Resources Corp. in Baltimore. "They get further on the sidelines every time Europe burps."

He added: "Everybody is saying, 'I'm going to steer clear of this. I don't understand the volatility. It's up 300 points one day and down 300 points the next day.'"

Since the 2008 financial crisis, investors have become less willing to take financial risks, according to surveys conducted by the Investment Company Institute, the national association of U.S. investment companies.

And the roller-coaster ride in the third quarter, when the market swung 300 to 400 points in both directions over many days, didn't help matters. The S&P 500 fell 14 percent in the July-to-September period.

Some investors are taking money out of stocks and seeking safety in investments such as money market funds. Others are shifting money from stocks to bonds, while some are stashing their money in savings accounts or exchange-traded funds. Some analysts say people could be cashing out their investments altogether to pay down debt.

"During periods when the stock market has been weaker, you've seen investor confidence about equities go down and rebound with the market," said Sean Collins, ICI's senior director of industry and financial analysis. "Having said that, it remains to be seen whether what we've seen in the past few years follows historical patterns or is this something a little different."

Continued Collins: "That's a possibility. We won't really know for a number of years. We haven't had a recession like this probably in most people's lifetime."

During the third quarter, investors pulled a net $74 billion from stock mutual funds, according to the Investment Company Institute. And money continued to flow out of equity funds in October and into early November.

"It's generally what you expect to see in a period where the stock market has a lot of volatility and uncertainty about the strength of the economy," Collins said, noting that there has been more positive news about the economy in recent weeks. Some economists, for example, are now predicting improved economic growth in the fourth quarter.

Given a weak stock market, "you tend to see outflows from equity funds and inflows to bond funds," Collins said.

But outflows are "not huge" relative to the size of outstanding assets, Collins said. For instance, stock mutual funds totaled $4.8 trillion in September, according to ICI.

Still, the see-sawing market hurt assets under management of Baltimore's two money managers.

Legg Mason, which has been struggling to stop client redemptions in the past two years, reported that clients pulled out a net $17.6 billion in the July-to-September quarter, up from $3.7 billion in the previous quarter. Legg Chairman and Chief Executive Mark R. Fetting told investors at a conference last week that the company was making progress on investment performance at its key money management units.

Even T. Rowe Price, which had been consistently attracting new clients even amid the market uncertainty, was not immune to the wild swings in the third quarter.

Clients withdrew more money than they put into Price mutual funds and other investments for the first time since the fourth quarter of 2008. Price reported $2.6 billion in net client redemptions for the third quarter. That's compared with a net $9.8 billion of new money that investors poured into Price funds and other products.

Price's chairman and chief executive officer, James A.C. Kennedy, said in an interview last month that volatility was caused in part by the political bickering in Washington.

"You saw that with the debt limit and the inability to attack the deficit issue," Kennedy said. "When you have that going on in the States, that undermines business confidence and also undermines the confidence of consumers."