True, when you give up looking for work, you disappear from the stats - same in Canada. Historically, these people come back when the job outlook improves.

But the market really doesn't care one way or the other. Presumably, earnings ultimately drive stock prices, so the small caps are theoretically indicating an improving business climate in the US. Of course, in the intermediate term, markets run on sentiment & liquidity (that's why there are long periods of PE expansion or compression). The liquidy these days is provided by the Fed (and the Japanese central bank since the disaster). So markets should do well until the liquidity or sentiment declines - investors may bail in anticipation of the end of QE2.

That said, I'm keeping about 40% cash, because this run is long in the tooth and I'm not sure when investors will bail. Also, the underperformance of the Venture bothers me - I think that continues until late summer. I don't want to get fully invested until we have a major correction.