Money-market funds hold $3.29 trillion. That s down 16% from their February 2009 peak, but it s still a monstrous sum, equal to about one-third of the stock market value of companies in the S&P 500 index. Should investors be comforted by this so-called cash on the sidelines?

Not especially. Large cash balances don t necessarily foretell a rise in stock prices. A reader browsing The Wall Street Journal on Aug. 28, 1930, learned that banks and insurance companies never before had so much money lying idle. Over the next 22 months, the Dow Jones Industrial Average shed more than 80%.

Moreover, the cash-on-the-sidelines metaphor misleads. Chemistry students know about something called the conservation of matter. Burn a block of wood until it s a small heap of ashes, and you haven t vanished atoms. You ve only rearranged some as gas and moved them elsewhere. Likewise, when you spend money market funds on a purchase of shares, you don t change the amount of money or the number of financial instruments in the system. Each share purchase is offset by an equivalent sale. Each redemption of a money-market share means underlying Treasury bills or commercial paper must be sold to a willing buyer who pays an offsetting amount.

If investors, frustrated by 0.1% money market yields, have chased stock and bond prices higher over the past year, it s because they ve been more eager for these assets than sellers were to get rid of them, not because they ve put cash to work.

Of course, financial markets, unlike nature, aren t quite a closed system. Stocks and bonds are created and destroyed all the time, as companies issue and repurchase them, and the supply of money changes as central banks manipulate it. Mostly, however, supplies increase. The amount of money circulating as cash, money-market funds and savings deposits has steadily increased 29-fold since 1959. A recent study on the link between economic growth and stock returns found that the supply of shares is diluted by about 2% a year, as successive crops of young companies go public.

What matters more than money-market balances to the short-term direction of share prices are sudden changes in either the supply of stocks or the eagerness of stock buyers. Since April 2009, companies have issued shares into a rising market, increasing the float by $139 billion, according to Trim Tabs, a research service. According to the American Association of Individual Investors, 40% of surveyed investors now say they re bullish, close to the long-term average, and up from 27% a year ago.

All told, money flows and sentiment surveys lately are saying the same thing as price/earnings ratios and dividend yields. Be cautious.