Everyday investors stay away from market

Associated Press

NEW YORK

The stock market is missing you.

For more than three years, ordinary investors disgusted with wild swings have pulled money out of stocks. They’ve missed a breathtaking bull market: The Dow Jones industrial average has almost doubled from its low point during the Great Recession on March 9, 2009.

In the meantime, corporate America has racked up double-digit profit gains. If investors valued stocks at normal historical levels based on profits, we would be celebrating Dow 15,000, not Dow 13,000.

But the profit explosion is over, and the Wall Street pros who trade stocks mostly for big institutions and the rich are getting antsy. They’ve been doing the buying. And if Main Street doesn’t join them, the historic rally could slow or even end.

Everyday investors “are more aware of the risk of the market,” says Howard Silverblatt, senior index analyst at Standard & Poor’s. “They’re nervous. They’re scared.”

The Dow closed above 13,000 last week for the first time since May 2008, four months before the financial crisis. In a sense, the milestone was disappointing: Profits are at an all-time high, yet the Dow is well below its record of 14,164, set in October 2007.

Even though profits are growing, individual investors aren’t buying. That shows up in something called the multiple — the ratio of what investors are willing to pay for a company’s stock compared with its annual profits.

If a stock trades for $100 and the company has made $5 in profit per share, its multiple is a fairly high 20. A higher multiple means more confidence that profits will grow.

These days, the multiples don’t show much confidence.