Follow The Money

With the Dow Industrials running up record highs on a regular basis and the S&p 500 finally breaking through its historic high of 2000, you'd think Main Street would be right behind Wall Street in riding the rally. In fact, some market watchers say retail investors are key to the market's future gains.

Dow At 14,000?

Abby Joseph Cohen, the chief U.S. investment strategist at Goldman Sachs, told CNBC that stocks remain underpriced and will continue moving higher this year.

In an interview, Cohen predicted the Dow would reach 14,000 by year end, while the S&P 500 would hit 1600.

The market is inexpensive on a price-to-earnings basis, the influential strategist said.

“Using sophisticated valuation models always leads to the same conclusion: this market is still 10% underpriced between now and the next six to nine months,” she said.

On The Web

Internet trading brokerages provide something of a measure of retail investor activity and sentiment, but recent results at the big three are mixed.

TD Ameritrade blamed weak trading n lowering its full-year guidance, even though 166,000 new accounts were added in its March quarter, up 52% from the previous quarter. The firms CEO Joseph Moglia says investors are still cautious. More recently, Charles Schwab said daily average trades were down 12% from a year ago but up 4% from March 2007. At E*Trade, trading in April was was up 11.% from March.

CNBC's devoting a day to answering the question, "Where Is The Retail Investor?"

Then And Now

During the heady days of the market boom around the turn of the century, it wasn't unusual to have a New York City taxi driver offering stock tips. Between day traders and the proliferation of Internet stock trading -- not to mention the explosion of wealth created by the dot com boom as well as a decade-long economic expansion -- it seemed everyone was in the market and something of a stock picker.

As Hampton Pearson reports, investors today are a little gun-shy and less likely to buy individual stocks. Mutual funds and ETFs are the preferred investment vehicles and they're more likely to global-oriented rather than domestic.

What To Do

Paul Schatz, Heritage Capital, LLC president and Harvey Hirschhorn, Bank of America portfolio strategist, offer advice to small investors with Dylan Ratigan.

Hirschorn says investors need to be "better diversified" in in 90s, including high-yield bonds, and look alternative investments.

Schatz reccomends ETFs because they are much easier for individual to get broader exposure, especially ones built around materials, industrials, energy and large-cap pharma. He urges caution when investing in global markets

Hirschhorn says the rally is in the "fourth quarter", and is getting narrower and more risky but will bring the greatest price appreciation.