"Given the shape of the curve modeling the DJIA over the last several decades, it makes sense to use an exponential growth model for predictive purposes. Plug the year in for x to get the DJIA value.
y = (2 Ã— 10^(-101))e^(0.1206x)"
I'll go with "John Hussman view that valuation must be included for proper modeling. See below:
"it should be clear that the defining feature of a secular bear market low (and the beginning of a long secular bull market) is deep undervaluation. Indeed, the 1949 and 1982 market troughs each brought the ratio of market capitalization to nominal GDP below 0.33. By contrast, the defining feature of a secular bull market peak (and the beginning of a long secular bear market) is extreme overvaluation. Indeed, the 1929 and 2000 market peaks each brought the ratio of market capitalization to nominal GDP to levels similar to what we observe today (the 2015 peak slightly exceeded 1.30)."
"Letâ€™s do some quick arithmetic. Suppose that real GDP growth accelerates to 2% and inflation picks up to 2%, producing 4% annual nominal GDP growth for the next 25 years. Now allow for the possibility that the stock market hits a secular bear market low similar to 1949 and 1982, not two or three years from now, but fully 25 years from now. On those assumptions, what would happen to the S&P 500 Index over the coming 25 years?"
"The answer is simple. The ratio of the future S&P 500 Index to the current S&P 500 Index would be:
(1.04)^25 * (0.33/1.30) = 0.677. Put differently, the S&P 500 Index would be 32.3% lower, 25 years from today, than it is at present. Even including the income from a growing stream of dividends, we estimate that in the event of a secular low 25 years from today, the average annual total return of the S&P 500 between now and then would come to less than 3% annually. Itâ€™s not a theory, itâ€™s just arithmetic."
John Hussman, Weekly Commentary