THE S&P 500 stock index broke through the landmark 2,000 level yesterday, marking a six-year rally that has benefited many Americans from Wall Street to Main Street.
During that time, the unemployment rate has fallen from a high of 10 per cent in December 2009 to a low of 6.1 per cent in June, but the rally is still seen as largely benefiting the wealthy, as paltry wage rises have left most Americans with little money to invest in retirement accounts.
The gains in United States stocks have also 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.
The rally has also received help from the Federal Reserve’s policy of injecting liquidity into the market through its bond purchase programme to keep interest rates low in recent years.
Even though the Fed’s bond purchase programme 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 US$10.5 billion (RM33.2 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 US equity market, encompasses the largest companies across various industries and is widely followed by pension funds, mutual funds and other institutions, with more than US$5.14 trillion in assets benchmarked to the index.
Rising stock-market values have boosted large companies’ pension funds, too. These defined-benefit plans reported among their best annual returns last year, 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 rally has also helped push global merger and takeover 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.
All 10 S&P 500 index sectors have more than doubled since the 2009 low. For 2014, the index is up 8.1 per cent, outpacing major overseas markets as well as asset classes like gold and Treasuries. Reuters