New market highs, but no raging bulls

Some investors may also be looking ahead to the 2008 presidential elections. "Typically, in the 12 months prior to presidential elections, markets have always been good," says Yared. The average gain is about 15 percent, he estimates.

"Sometimes the candidate or challenger says what investors want to hear," he says, but adds, "They don't like to hear that taxes are going to be raised."

While many Americans may be avoiding the market, foreign investors are substantial buyers of US stocks, says Yared. "They like the cheap dollar. They are buying in at a relatively inexpensive price," he maintains. In fact, US markets may seem undervalued to them, he says, since they are trading at a price-to-earnings ratio of 16 compared with 20 to 25 in foreign markets. "The US market is the only major market with a teenaged number," he says.

However, when US investments are repriced in euros and pounds, the gains don't look so substantial, says David Kotok, chairman of Cumberland Advisors in Vineland, N.J. The dollar has been weak compared with those currencies.

"If you look at a broad index of the global markets, they are about double the gains of the US market in terms of dollars," says Mr. Kotok.

For many Americans, a key deterrent to investing has more to do with history: Some still feel burned from losing money in the markets after the dotcom bust, says economist Jason Schenker of Wachovia in Charlotte, N.C. "That's why they have looked to commodities and real estate – tangible assets," he says. "People remember the boom years of the '90s, and the economy today does not feel the same."

The main beneficiaries of this bull market have been institutional investors and sophisticated investors such as hedge funds, which often borrow money to enact their complex strategies, says Mr. Clissold of Ned Davis Research. "One of the major underpinnings of the market has been the merger and acquisition boom driven by private equity," he says. But unlike other past merger booms, the private firms don't have stocks that can go down in value after an acquisition. "So you have to look at the market like a commodity market, where there is a reduction in the supply of stocks," he says.

The number of shares that investors can buy from existing companies is shrinking as well, because of corporate buybacks, points out Clissold. In the first quarter, earnings per share for the market overall rose 3.6 percent due to share repurchases, Clissold's firm estimates. "That helps anyone who owns those shares," he says.

The recent climb in the market and the breaching of the 14000 level may help draw more individual investors into the market, says Mr. Kleintop of LPL Financial Services. "It encourages individual investors to come back."

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