If there is one thing that Wall Street has trouble living without, it’s a good trend. So this summer has been a tricky one for everyone to navigate, given the uncertainty that dominates everything from economic data and interest-rate outlook to the kinds of returns investors can earn from stocks.

The result? The kind of fear and panic that swept through the Street in 2008 may have abated, but in its wake, bankers, traders, and their clients have been left to struggle with an environment characterized by risk and fear. One veteran trader points out the kind of irrationality that produces in market levels: “There is no way that blue-chip companies should be offering yields that are twice the level of the risk-free rate of return” that the U.S. Treasury is willing to pay to investors. That kind of gap signals, he says, an extraordinary degree of risk aversion on the part of investors.

Talk to Wall Street bankers and you’ll hear similar tales of risk aversion on the part of corporate CEOs. Many are sitting on record amounts of cash—corporate balance sheets are in far better shape than those of governments or individuals these days, and estimates of cash on hand for U.S. companies alone are north of $2 billion by some accounts—and yet there is a reluctance to make use of that capital.

“Talk to a client about an acquisition these days, and often it’s as if you’ve asked him to sell his firstborn child into indentured servitude,” groused one banker at a bulge-bracket firm recently.

True, M&A activity has grabbed headlines recently. Australian mining giant BHP Billiton Ltd. is forging ahead with its $39 billion hostile offer to acquire Potash Corp., a Canadian resources powerhouse. Others willing to take the risk of venturing into the M&A field recently include Hewlett-Packard, Telefonica SA, and Dell. But other deals have been driven more by need than by the perception, such as the sale by BP of up to $30 billion of assets in order to generate cash to pay down some of the costs of the massive oil spill in the Gulf of Mexico.

But a handful of marquee deals and a few weeks of activity aren’t enough to signal that risk aversion is ebbing and confidence is returning. The fear of misreading the economic environment—are we in for a double-dip recession; did the last recession ever actually end?—remains significant. That being the case, what is going to persuade a CEO to take the already-large risk that a deal will contribute to the growth in assets and profitability of their firm?

It’s not just in the M&A arena that extreme caution is affecting decisionmaking on the part of Wall Street entities. For months, small businesses have been complaining that—public pronouncements notwithstanding—their bankers are as unwilling to extend credit today as they were at the height of the crisis.

The problem is that where those lending managers once perceived opportunity—that lending would generate both a return on and a return of capital—now they see only the risk that their capital may be lost altogether if they let it out of their sight.

The next place this risk aversion is likely to surface is in the hiring and compensation levels across Wall Street as a whole. The latest survey of Wall Street compensation trends by Johnson Associates, Inc., released earlier this month, sees pay for investment bankers essentially flat, while predicting that that for fixed-income professionals will fall between 5 percent and 15 percent. Those who work on the equity side of the business aren’t much better off: Projections call for anything from a flat year to one in which incentive pay slumps 10 percent. The culprit? Risk aversion, the Johnson Associates report concludes.

It’s only a matter of time before those on Wall Street in charge of hiring and firing for trading desks and investment-banking teams get the message that what they once might have seen as opportunities are really risks. Luring that promising dealmaker on board from a rival firm may not look like such a coup if there are no deals available to work on. And why boost the depth of the fixed-income trading desk if even Goldman Sachs can’t make a profit every trading day of the year?

This risk aversion is a sharp and timely reminder that behind all the sophisticated trading systems that make today’s Wall Street buzz and hum, it is human beings who still make the decisions. And human beings are emotional creatures, full of "animal spirits," as the Street likes to dub the rival emotions of fear and greed. When returns from trading are sluggish due to volatile, sideways markets; while Wall Street’s leaders are still trying to figure out what kind of impact the Dodd-Frank reform legislation will have on their business; unless and until it becomes clear that the surge in M&A is more than just a fleeting phenomenon, there is no incentive for Wall Street to bump up its staffing and every incentive for firms that feel under pressure to maintain profitability to begin laying off staff.

“About the only people whose jobs are safe these days are the risk managers,” quips one Citigroup insider.

For those who rely on Wall Street ebullience and risk taking to help their own business grow—in particular, small businesses—that’s depressing news. But until there’s a clear trend in place—in the economy as well as in the financial markets—anyone who expects Wall Street to be in the vanguard, helping to create the new investment opportunities it hopes to profit from later on, are likely doomed to disappointment.