(Adds closing level of the S&P in fourth paragraph)
By Ryan Vlastelica and Jennifer Ablan
NEW YORK Aug 25 The U.S. S&P 500 stock
index broke through the landmark 2,000 level on Monday, marking
a six-year rally which has benefited many Americans from Wall
Street to Main Street.
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 of this year, but the rally is still seen as largely
benefiting wealthier Americans as paltry wage rises have left
most Americans with little to invest in retirement accounts.
The gains in U.S. stocks have outpaced those in other major
world stock markets in the past year and have been one of the
top investments in 2014, beating the safe havens of gold and
bonds. Furthermore, the gains have come faster than anticipated;
in the most recent Reuters poll, analysts forecast 2,000 would
be reached towards the end of the year.
Markets have been able to reach the target earlier in part
due to the Federal Reserve's policy of injecting liquidity into
the market through its bond-purchase program to keep interest
rates low in recent years. The index fell short of 2,000 at the
close, ending Monday trading at 1997.94.
Even though the Fed's program is winding down, investors
expect the rally will continue as economic growth has recovered
this year and low mortgage interest rates have supported housing
"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 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 U.S. 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
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
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
The rally has helped push global deal activity to a
seven-year high and the gains have encouraged corporations to
buy back vast amounts of their own stock, enabling them to
increase earnings per share even though revenue growth has been
ONLY GAME IN TOWN
The S&P 500 has beaten its popular rival, the Dow Jones
Industrial Average, which only includes 30 stocks. The
S&P 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
on July 16.
The scale and speed of the rally has raised questions about
market valuation. The S&P's forward price-to-earnings ratio is
currently 15.7, about in line with historical norms, but some
worry stocks will get hit once the Fed winds down its
'quantitative easing' bond-buying program.
"I'm a little worried about where equities are in the short
run, between Labor Day and the end of the year, since I expect
some kind of adjustment as QE winds down," said David Joy, chief
market strategist at Ameriprise Financial in Boston.
"I'm not feeling too enthusiastic about stocks. I don't see
a lot that's cheap. I'm more of a seller than a buyer," said
Joy, who helps oversee about $750 billion in assets.
For 2014, the index is up 8.1 percent, outpacing major
overseas markets as well as asset classes like gold and
The Barclays U.S. aggregate bond index is up 4.43 percent
year to date, while the MSCI International ACWI Price Index
, an index of global shares, has gained 5.4
Still, individuals without substantial retirement funds may
have not benefited from the rally. Much of today's action comes
from large institutions, suggesting that individuals may have
been scared off by the financial crisis, missing the multi-year
"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.
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."
(Reporting by Ryan Vlastelica, Lauren Young, Megan Davies,
Jennifer Ablan and Daniel Bases in New York and Robin Respaut in
San Francisco; Editing by Megan Davies, David Gaffen, Clive
McKeef and James Dalgleish)