Last week, the Dow Jones hit a record high — at least if you didn't adjust for inflation. So who actually benefits from a booming stock market?
Here's what that means in dollar terms: "In 2010, according to Wolff’s analysis, the stock holdings of the middle fifth were worth about $9,000. The holdings of the top 10% were worth $500,000, and those of the top 1%: $3.5 million."
Now, a booming stock market might be beneficial in other ways. If at least some people feel wealthier, they might spend more, which in turn could boost the economy. Yet there's not much evidence that this actually happens. One recent study by Karl Case, John Quigley and Robert Shiller found "at best weak evidence of a link between stock market wealth and consumption." (By contrast, when housing prices go up, people really do seem to spend more — so a housing recovery is worth cheering.)
There's also business investment to consider. Economists have found that companies do seem to invest more when their share prices go up. But it's a bit of a mystery as to why that is, since few firms actually raise money for investments by issuing stock — instead they borrow or invest out of their profits. One 2007 paper (pdf) by Yaron Leitner of the Philadelphia Fed tried to explain the link by arguing that a rising stock market can "improve investment making decisions."
So, yes, a rising stock market is a good sign — but the direct benefits will mostly accrue to a relatively small handful of Americans, at least at first.