(Edit: The following is in response to EOTB and RandyB's discussion of the decoupling of the stock market from consumers (Wall Street and Main Street). I didn't quote them because I'm not directly addressing the points they made, but since a couple people posted while I was composing this, and it isn't directly related to shorting and squeezegate, I figured I'd add a quick note at the top in case this seems out of place.)
Looking at it from a step further back might be useful.
The stock market doesn't reflect the overall economy. It just composed of publicly traded firms. Which do make up most of the capital sector, so the stock market is a reasonable proxy for the growth of the capital sector of the economy. Just not the economy as a whole.
The biggest part the stock market doesn't reflect is the consumer sector. The consumer price index (CPI), which measures the rise in price of a basket of consumer goods, is a better reflection of the consumer sector, though it's very imperfect. For instance, the basket is mostly stuff like milk and bread, and a lot of the rise in consumer prices has been in other areas, like healthcare and higher education. So it underestimates the real rise in costs to consumers. The other metric of the consumer sector is wages.
The CPI is often used as a measure of the inflation (rise in prices) of the overall economy. That's just wrong. It's a measure of the rise in prices of consumer goods, minus some of the most expensive goods, and doesn't really measure the capital sector at all. True inflation is the rise of all prices across the economy.
When prices rise (inflation) in certain areas of the economy and not in others, it's a sign of wealth redistribution. Prices have been fairly flat, when measured by the CPI or wages. But prices have been skyrocketing in education, healthcare, and the stock market has been booming. That means more money has been going into the capital sector, healthcare, and education, and less into wages and the prices of a few consumer goods.
There are a number of reasons behind this, and most have to do with the Fed. The other (equally or more true) definition of inflation is growth in the money supply. When the Fed prints money, they're not adding any real value to the economy. So the money they print dilutes the value of the existing money.
For instance, let's say you have an economy that's composed solely of chickens, there are a total of 10 chickens, and $100 to exchange them with. That means that each chicken will be worth $10. But if someone prints $50 in new bills, that doesn't cause any new chickens to appear. So what happens when you have $150, and only 10 chickens? Prices will eventually adjust, and chicken will become worth $15. So that $10 you had before, that you could have used to buy one chicken, is now only worth 2/3rd of a chicken. Your money lost 1/3rd of its value.
That's what happens when the government prints money. The money you hold is worth less. But this doesn't happen instantly. There's a ripple effect, because the people who buy a chicken when people still think 1 chicken = $10 end up with more real value (chickens), while those who wait until chickens are worth $15 before buying won't be able to afford as many chickens (so the real value of their holdings will go down).
In the real economy, what happens is the banks create the money, then they lend it out. But money generally isn't lent to consumers, it's lent to businesses. So the financial sector gets first dibs, followed by the capital sector. They can spend the money before it loses value, but by the time that money works its way through the production process and becomes your salary, it's fully deflated. That transfers the real wealth of the economy from the wage earners to the capital sector, and especially the financial sector.
Only a small part of the reason why stock markets have boomed over the last 30 years is real innovation. Most of it is just a shift of wealth from ordinary consumers to businesses, via monetary inflation. The same reason explains why Wall Street has grown, even more quickly.