i want to remind people once you fall off unemployment your not counted in the unemployment rate. rich people are making money on wall st since US government sponsors them but an economy is the measurement of everybody.
I've been doing a lot of year end closing and tax prep for clients -- C corps, S corps, LP's, Sole Proprietors -- and very few have profits and if they do they are very thin. In many cases their employees have been slashed by 90%. Booming economy with record breaking growth. So how are all these businesses losing money or barely scraping up a tiny profit. There's one and only one answer to this question and it's not worth even mentioning it. The economy is still in the toilet in a severe way.
**editing my post since i realized that the highs discussed are 4 years from today. survival of the stocks probably makes IWM, SPY look much better than they would have been given a constant stock composition. IWM must be affected a lot since even DOW is much different than 4 years ago. if somebody has today's index values with only 2007 constituents that's may be an eye opener as far as what sort of recovery we have had.
The propoganda machine that runs on our airwaves 24/7 would love for us to believe that a parabolic stock market = a healthy economy. Honestly, I've seen this game for years now and yet there are still so many, many suckers who fall for this line of crap, it just amazes me each and every time. The truth is if you are some shareholder of corporate titan with alot of shares of stock in one of the many companies that have doubled, tripled, quadrupled, etc, etc in the past 18-24 months, you're right back where you were in 2007-08 with even greater buying power in the luxury market. If you are a privately held corp (like the companies you are working with/for), you've felt the brunt on the "non asset inflated" economy which basically completely sucks, as these companies feel the squeeze of rising input costs with slack end user demand.
The real answer to your question is the buying power lost over the past 10-15 years. The lack of volume, the continued outflows even during this rally are more indicative of a mass exodus and growing apathy towards the equity markets. ZIRP, which is essentially a gun to the head of all savers, hasn't even made an impact on retail interest in buying stocks. More than likely, it's been the main factor in liquidations throughout the past two years as those on fixed income are drawing down principal instead.
I wonder about the equity market outflows. Skepticism about the market might be part of it but people are tapping their nest egg to survive. The real estate ATM is broke, and the economy sucks, etc. So more people have been left out of Obama's "hope rally". But the market is up, and money is going in from those working with pension plans. That must be nice.
Bernanke's position that American's will feel a "wealth effect" from rising stock prices is laughable. A quick study of human psychology demonstrates that investors sell into falling markets and buy into rising markets. Many people were moving their 401(k) money to bond funds near the bottom in 2008/2009 so they are not feeling the "wealth effect." Those that are out of work have had to tap their retirement savings to pay the mortgage and such. Certainly some people are feeling the wealth effect but the majority of the middle class has missed most of this move up. The middle class drives the economy and the middle class is feeling a lot of pain. The only thing that seperates this Great Recession from the Great Depression is the existance of the FDIC and unemployment security. Take those two out of the equation and we are in the Great Depression II.
Oh yeah. Pensions! The state of Illinois isn't even funding pensions for state workers at the moment. That's a huge problem down the road if it continues. My old man worked in the trades for 40+ years and receives a pension but he gets quarterly letters about the situation of the pension fund and each one become more and more dire. No one is working to pay into the pension fund so the fund is taking in little and paying out a lot. The clock is ticking on that equation. The economy is booming for the banks because they were back stopped by the people who are losing contributions to their pensions or who could potentially lose their pensions entirely. I got an electrician client who had 90 employees prior to 2007 and ran a C-corp because he was in a high tax bracket. Guess how many employees he has now. One -- himself.
Russell does get redone a lot, and more so because of the crisis. The way they run it, some move up to the 1000, some move down to the 2000, and then of course I suppose some go out of the 2000 and get replaced by others. Survivorship bias is definitely at work in all the averages, but if you think about it, if you have any sort of diversified portfolio it would be at work there too, simply because as the underperformers head south they also make up less of your portfolio, so they automatically count for less. Vice versa for the outperformers. In other words, the survivorship bias in the averages is not so different from what you'd have in your portfolio.