U.S. S&P 500 stock index hits 2,000 milestone
During that time the unemployment rate has fallen from a high of 10 percent in December 2009 to a low of 6.1 percent in June this year, but the rally is still seen has largely benefiting wealthier Americans, as paltry wage rises have left most Americans with little money to invest in retirement accounts.
The rally has also received help from the Federal Reserve's policy of injecting liquidity into the market through its bond purchase program to keep interest rates low in recent years.
Even though the Fed's bond purchase program is now winding down, investors expect the rally will continue as economic growth has recovered this year and low mortgage interest rates have supported housing market activity.
"I continue to think this bull market has several years to go," said Steven Einhorn, vice chairman of hedge fund Omega, which manages $10.5 billion. He predicted earlier this year that the S&P 500 index would reach the 2,000 level.
The benchmark S&P 500, the proxy for the U.S. equity market, encompasses the largest companies across various industries and is widely followed by pension funds, mutual funds and other institutions, with more than $5.14 trillion in assets benchmarked to the index.
Wage and salary earners have benefited from the S&P's rise. The average balance of a Vanguard 401(k) defined-contribution retirement account in July was $102,104 or nearly double the level of $56,030 during the Great Recession of 2008, according to the Vanguard Group.
"The rise in the S&P 500 is a virtual twin to the rise in the total US stock market, so of course investors, and especially index fund investors, who received their fair share of those returns, feel wealthier," said John Bogle, Vanguard's founder and former CEO, who started the first S&P index fund in 1975.
Rising stock-market values have boosted large companies' pension funds also. These defined-benefit plans reported among their best annual returns in 2013, dramatically closing funding gaps owed by companies to these funds that had opened up because of the collapse in stock market values during the financial crisis.
The stock market rally has helped repair state public finances as well. In California, the state with the most volatile income tax flows in the country, revenues for the last fiscal year exceeded expectations. In Massachusetts, where the rainy-day fund is tied to capital gains taxes, emergency reserves have spiked to $1.36 billion, roughly the level in 2010.
The rally has also helped push global merger and take-over activity to a seven-year high as chief executives have had boardroom confidence to strike deals and have given private equity funds a way to exit deals at profit through initial public offerings.
The S&P 500 gains have also encouraged corporations to buy buck vast amounts of their own stock, enabling them to increase their earnings-per-share even though revenue growth has been slow.
ONLY GAME IN TOWN
The S&P 500 has beaten its popular rival the Dow Jones Industrial Average .DJI, which only includes 30 stocks. The S&P500 index has risen 195 percent from its closing low in 2009, while the Dow is up 161 percent and the tech-heavy Nasdaq is up 260 percent. The Dow saw a record closing high of 17,138.20 points on July 16 this year.
"I still have a Dow 10,000 hat in my office," said Jeff Mortimer, director of investment strategy at BNY Mellon.
All 10 S&P 500 index sectors have more than doubled since the 2009 low. For 2014, the index is up 8.1 percent, outpacing major overseas markets as well as asset classes like gold XAU= and Treasuries.
The Barclays US aggregate bond index is up 4.43 percent year to date, while the MSCI International ACWI Price Index .MIWD00000PUS, an index of global shares, has gained 5.4 percent. The S&P500 is also beating China and Japan's stockmarket gains this year so far.
Still, individuals without substantial retirement funds may have not been winners from the rally. Daily trading volume has dropped from more than 8 billion shares a day in 2007 to less than 6 billion now, with most of today's action coming from large institutions, suggesting that individuals may have been scared off by the financial crisis, missing the multi-year rally.
"Americans are wealthier but bear in mind that the top 20 percent of American income earners own 90 percent of the market," said Tobias Levkovich, chief U.S. equity strategist at Citigroup. "It does help the economy overall but may not help all segments of demand."
Hedge fund performance has also trailed stock market returns in the last two years. According to Levkovich, hedge funds have trailed the S&P 500 index in every quarter running since the second quarter of 2012, and for this year, the HFRX Equity Hedge Index has gained just 0.7 percent. That actually augurs for more gains later this year as hedge funds struggle to chase performance.
Short sellers, who bet on market declines using borrowed shares, have also been squeezed.
"Funds with any kind of short bias have had difficulty keeping their head above water," said Frank Davis, director of sales and trading at LEK Securities in New York. "They're trying to act contrary to the market's movement, which has been dramatically moving up."