I started mine at 1950 and took it to 1980. From there, the S&P should be around 820.
Add to this all the emerging economies, and economic growth worldwide, and the fact that we are no longer just a manufacturing base, and have invented new models with much higher productivity and profits.
That's why you must factor in a huge potential as compared with the fifties which were largely fueled by low margin manufacturing for domestic use as opposed to a global economy of scale.
The data is interesting as a comparison, but jeez Louise! The entire model has changed dramatically with margins going into the 30-50% category in tech, for just one example.
Pe's in these companies have been traditionally much, much higher then they are now.
You also need to look at just what companies are in the indexes and what indexes should be used.
One can make a very compelling argument that this market is so oversold, it no longer is connected to reality. A ten PE is comparable to the great depression!
Why did you stop at 1980? IMHO, there was a large shift that began in the 1980s when IRAs and 401(k)s came in to being and became common. I agree that the portion of the market beyond 1995/96 looks like it is affected by a lot of funny money to me. But the period from 1984 to 1996 or so striks me as a genuine steepening of the curve in the equities markets that was based on the solid fundamentals of much more investment money flowing from middle class workers into their retirement savings.
Why would you neglect this critical part of the curve? Think about it? Before 1980, pensions were common, so workers didn’t put a lot into retirement savings. After IRAs and 401(k)s became the norm for those who have no fixed pension to rely on, many people began socking away good money in those retirement investment vehicles. Why would you ignore that critical part of the curve?