By Michael Santoli
The stock market has never been higher. So why do most people not seem to care?
The Dow Jones Industrial Average (DJI) on Tuesday surged to a new record above 14,500, more than double where it sat in the darkest days of the Great Recession in early 2009, making this one of the longest and largest market rallies on record.
And yet Americans aren’t buying into the happy message, showing little of the kind of get-rich optimism and bull-market excitement that strong markets usually inspire. A recent survey showed that individual investors’ ownership of stocks was near a one-year low despite the soaring Dow, and there is very little casual talk of hot stock tips at parties or around the office. Since 2007, investors have pulled more than $400 billion from mutual funds that invest in U.S. stocks, according to Lipper.
Here are a few reasons so many people are greeting news of the record-setting Dow with a shrug and a sneer:
1. The market’s recovery story doesn’t match the economic picture most see. While big companies book record profits, borrow cheaply and watch their stock prices climb, the American economy is stuck in an uneven and slow recovery. Unemployment is down quite a bit since the recession ended more than three years ago, but it remains uncomfortably high at 7.7%. Consumer confidence is stuck near weak 2010 levels. Home prices, while perking up in some areas thanks to heavy investor buying, are still underwater compared to six years ago.
So while a healthy corporate economy and low interest rates help drive stock prices skyward, the economic wounds are fresh enough that the average person isn’t feeling sufficiently secure about the outlook to bet on stocks – even if they have the spare savings to do so.
2. The little guy has been burned twice in a dozen years. While the Dow has nosed to a new record, the broad stock market is trading right in line where it peaked both during the tech bubble in 2000 and the housing mania in 2007. Within a couple of years each time, the stock market lost about half its value. So simply having climbed back to the same level first reached 13 years ago is not enough to persuade Main Street that Wall Street is on a sustainable roll.
3. The Federal Reserve’s role raises suspicions. The standard explanation for why the financial markets are galloping ahead while the everyday economy trudges along is that the Federal Reserve is shoveling free money at the markets and producing illusory wealth.
The Fed, it’s true, has taken extraordinary steps to counter the calamitous effects of the financial collapse, setting short-term interest rates near zero and buying more than $2 trillion in bonds with newly created money since 2008. Since last fall, the Fed has been injecting $85 billion per month into the markets via bond purchases, a policy widely viewed as supporting corporate loans and stock prices. And even though mortgages and car loans have become cheaper and more plentiful, savers are contending with minuscule interest rates on deposits.
Meantime, politicians’ inability to reach lasting agreement on long-term budget issues only feeds the popular idea that policy makers are working at cross-purposes in ways that jeopardize future prosperity.
4. There is no compelling business or technological boom story to captivate investors’ imagination. In the late ‘90s, the embrace of the Internet was transforming commerce and daily life. In the mid-2000s, we had a broad-reaching housing boom along with the rise of China as a global economic power.
The current stock-market rally lacks a similar animating theme of progress. The leading stocks lately have been staid Old Economy blue chips such as Johnson & Johnson Inc. (JNJ) and Campbell Soup Co. (CPB), with dividends that are slightly more attractive than boring old bonds. Stocks are rising because they are viewed as the only logical place to stash money that’s earning a poor return on bonds.
Boomlets in North American shale-oil drillers and refiners, and a low-level buzz of 3-D printing plays, haven’t been enough to generate much enthusiasm. Meanwhile, the few widely coveted stocks of popular companies that have caught Main Street’s attention have proved disappointing. Apple Inc. (AAPL) was viewed as a can’t-lose stock, rising from $400 to $700 from January to September last year, only to fizzle as iPhone competition heated up, dropping the shares back to $435. Facebook Inc. (FB) was the most anticipated new offering in years last May. Yet it was priced too high, at $38 a share, falling steadily in its first months. And trading glitches on its first day on the Nasdaq reinforced many investors’ sense that the stock-exchange game is rigged against them.
History suggests that individuals eventually tire of watching stocks enrich other people and will jump back into the market once it has gotten high and far enough away from the last downturn. If this bull market is to see broad public participation before it expires, then the Dow isn’t at a top yet.
What’s not yet clear is whether the disdain for stocks and unease with the economy are so strong this time that the little guy will let the whole bull market run its course without him.