Man looking at piggybanks standing on desk © Jamie Grill, Tetra images, Getty Images

With the Dow Jones Industrial Average (INDU) having surpassed its October 2007 peak this week, can consumers breathe a sigh of relief?

The sentiment on Wall Street may be that our long national fiscal nightmare is finally over, but the stock market is just one barometer of prosperity, many economists and consumer experts argue. And the problems that have plagued the United States in recent years -- declining household income, surging prices for many key goods and services, low interest rates for savings -- remain very much in place, they say.

Add to that the fact that many investors started losing confidence in recent years -- and went to cash at the very time the Dow began its bullish run in 2009 -- and an equally scary reality emerges: The market's average may not reflect what many Americans are seeing in their monthly portfolio statements. "We're not even close to where we ought to be," says Ken Goldstein, an economist with the Conference Board, the organization behind the Consumer Confidence Index.

Goldstein is referring to the fact that the index, which translates consumer views on the economy into a numerical formula, is well off from where it stood at the Dow's previous peak: In October 2007, the index registered at 95.2. Today, it's at 69.6. (The index's post-2000 high of 144.7 came during the peak of the dot-com boom.)

It's not all bad news, of course. The unemployment rate, at 7.7%, is well below its past-decade high of 10% in October 2009. And while consumer prices have climbed since October 2007, they have done so at a fairly normal annual clip of 1.9%, according to the Bureau of Labor Statistics.

Plus, many savers have seen respectable increases in their retirement portfolios over the past five years. Vanguard, for example, reports that the average 401k account balance rose from $78,000 in 2007 to $86,000 in 2012. And even factoring in contributions, Vanguard research analyst Jean Young reports that one study of 401k participants, conducted by the firm, showed an average annual return rate of 2.3% over the same five-year period. Granted, says Young, such a yield is "nothing to write home about" -- by comparison, the Dow was up at least 20% in five of the 10 years during the '90s -- but Young adds that it's a solid figure given the low inflation over the period.

If there's any reason that investors are feeling the pain, Young argues, it's because they've bought into a media-fed notion that the economy is still broken, despite evidence to the contrary. "Negative headlines sell," she says.

The Great Disconnect

Still, many financial experts say that there's a rationale behind those headlines, despite the market's rosy return and other improving economic indicators. In short, they view the current state of affairs as the Great Disconnect that has followed in the wake of the Great Recession. And it's a story that they say can be told in one sobering statistic after another.

Begin with income. On the one hand, wages have basically kept pace with inflation since late 2007. But on the other, unemployment and underemployment have affected overall household income -- to the point that there's been about a 6% dip to the current median figure of $51,584 after adjusting for inflation, according to Sentier Research, which tracks income. "During this so-called recovery, we've gone down," says Sentier principal Gordon Green.

And what about expenses? While the Bureau of Labor Statistics may say prices are in check, some consumer watchdogs say what applies to overall prices may not apply to some key expense categories.

Consider the cost of fuel: A gallon of gas has gone from around $2.75 in October 2007 to $3.75 today, according to AAA. Or medical care: Annual premiums for family coverage for employees in large firms (200-plus workers) have increased from $2,831 in 2007 to $3,926 in 2012, according to the Kaiser Family Foundation. Or even a steak: In a January 2013 survey by Teri Gault, founder of the coupon and savings site The Grocery Game, Gault noted that the price for top sirloin had surged from $2.99 to $6.99 a pound at one California supermarket in the past year -- a 133% spike.

Little wonder, says Gault, that dollar stores have become all the consumer rage in recent years. Shoppers are "desperate for value," she says.

A loss of investor confidence

But what about stock market returns offsetting some of this economic stress? The relatively good news on the 401k side -- at least as reported by Vanguard -- does not necessarily jibe with the broader reality that many financial advisers say they're seeing. They say they're meeting with many first-time clients who have withdrawn large sums from IRA or traditional brokerage accounts during the past few years and have paid the price in returns as a result. "Almost everyone coming in to me today has tons of cash," says Lee Munson, founder of Portfolio LLC, a New Mexico-based investment firm.

And there's data to back up those adviser claims: In the two-year period through January 2013, the Investment Company Institute reports that outflows from equity mutual funds outpaced inflows in 21 of the 24 months -- meaning money was being withdrawn from the market at a fairly significant rate. It's a loss of investor confidence that speaks volumes, says Joe Duran, chief executive officer of United Capital, a California-based investment advisory firm. "They feel like the game is rigged," says Duran.

Of course, at one time, "going to cash" wasn't so bad. In fact, it's the way a generation of retirees saw themselves through their golden years, living off CDs and other fixed-income investments that paid yields of 5%-plus. But therein lies what many financial experts say is the greatest cause for concern over the past five years -- the dip from that top-tier interest rate on savings of 5.3% in October 2007 to 1% today, according to Bankrate.com.

It's a sea change that has shaken the traditional model of retirement planning, says Greg McBride, senior financial analyst of Bankrate.com. "The sharp reversal in interest rates has dramatically cut the buying power of retirees and anyone else dependent on a fixed income," he says.

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Still, McBride says that if someone saving for retirement was smart enough to stick with stocks through the past five years, they may be OK, other economic factors aside. But McBride is just not sure how many investors had the wisdom to do so. "The train may be back at the top of the mountain," says McBride, "but you're not there unless you stayed on the train."

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