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Where should the stock market be?

With all the bleak talk about our economy and the lousy performance of the stock market over “the last year”:http://finance.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=1&chfdeh=0&chdet=1204664400000&chddm=98923&q=INDEXSP:.INX (down 5.61%), I wondered if the stock market is _really_ lower than it should be right now. I plotted the value of the S&P 500 since January 2, 1990 and compared it to the desired 10% annual growth rate:

The green line shows what the stock market would have done had it done a stable 10% return every year. The blue line shows the actual prices of the S&P 500. So, yes, the stock market is lower than where it “should be” right now. The dot-com bubble and crash were bad, but today we’re almost at the historical peak.

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