The stock market is up in nominal dollars (“mini dollars”). How are U.S. investors doing compared to 2007? The S&P 500 peaked at 1565 in October 2007. According to the Bureau of Labor Statistics, it would need to be 1738 today, about 12 percent higher, to yield the same spending power.
If we measure spending power in bars of gold, the S&P 500 has a lot farther to go to recover the losses since 2007. Gold was $800 per ounce in October 2007, so the S&P 500 was worth 1.9 ounces. With gold at $1600 per ounce today you’d need the S&P 500 to be over 3000 to have the same buying power.
If wealth is to be measured in spending power another consideration is tax rates. The only way for an investor to get a return is via capital gains or dividends. Taxes on that kind of income have gone up by roughly 11 percent of the total received since 2007 (federal income tax adds 5 percent; state income tax perhaps another 2 percent; ObamaCare surtax tacks on another 4 percent for people in households making $250k/year or more). Consumption taxes, e.g., sales tax and hotel and restaurant taxes, have gone up 2-3 percent. So it seems reasonable to conclude that the S&P 500 would have to go at least 15 percent higher in order to compensate for these new taxes.
My back-of-the-envelope calculation is therefore that the S&P 500 would have to rise at least another 33 percent, i.e., to about 2000, in order to yield the same spending power that it had in October 2007.