Below I've posted a chart of the Dow Jones U.S. Total Stock Market Index over the period from the end of 2000 to year-end 2012. This index is the broadest U.S. stock market index, reflecting the value of nearly the entire U.S. stock market, over a twelve year span. This line is shown in blue. In this graph, the second line shown (the red line) reflects the initial market index at year-end 2000, adjusted by yearly inflation, using the U.S. government's official CPI figures.
While it may be exciting for investors and traders to see markets at "record" highs, it doesn't reflect increases in real wealth until accounting for underlying inflation. Because of the steady march of inflation, the market must increase by at least a few percent every year, just for an investor to stay in place with his or her wealth. And that's not including commissions, advisory or other fees, trading costs or taxes. These factors represent another barrier that investors must hurdle just to keep up.
Perhaps it's because the increases in the stock market don't necessarily lead to an increase in real wealth for the country that so many are still struggling. A record number of Americans are now collecting food stamps and disability payments. It was recently reported that more than half of Americans have less than $25,000 in financial assets, despite those dollars becoming less valuable each year.
The financial industry now accounts for about a half of total corporate profits. Until the 1970s, financial companies rarely accounted for more than 20% of total profits, with that share as low as 10% in 1947. With every decade the financial industry increases its share of the U.S. economy. But an overweighted financial industry did not indicate a strong economy in 2008 or 2001 (when the financial sector accounted for about 70% of the total market's earnings) and it does not indicate one now. It's been estimated that the financial sector accounts for less than 10% of the "value added" to an economy. In other words, the financial sector doesn't really enrich the whole economy, just its own at the expense of those outside the industry.
Ironically, the market, and the economy as a whole is more dependent on the financial industry than ever before. The lesson of the 2008 financial crash has not been learned by policymakers. Those financial companies that were "too big to fail" are now bigger. At the heart of this leveraged and financially-dependent industry is the Federal Reserve and the federal government. The Fed engineers very low interest rates, and works to secure high profits for the banking and financial industries. The federal government debts, while a burden to taxpayers, are a boon to the financial industry as those debts lead to underwriting and trading profits for the connected financial industry.
Unfortunately, a rising stock market does not necessarily mean more wealth for consumers or a healthy economy. Zimbabwe had the best stock market in the world a couple years ago as inflation ravaged its citizens. And a stock market that is goosed up by overspending governments and a federal reserve addicted to inflation isn't necessarily showing a diversified and healthy economy. A stock market can rise for many reasons but its best when it's because of a stable, diversified and growing economy, that isn't propped up by financial industry profits, a money-printing Fed and a government that can't balance its books.