The Dallas Fed 12mo Trimmed Mean PCE(inflation measure) reported at 1.6%. Inflation has been low and stable since Jun 2014-see the table below. The SP500 Intrinsic Value Index for Dec 2014 is $1,912. With the SP500 at ~$2,080, the market is deemed fairly valued and well below previous periods of excess investor enthusiasm-see the chart below.
The S&P 500 Intrinsic Value Index is an approximation of the price level attractive to deep Value Investors. Markets do not have a history of falling below this level primarily due to buying interest from Value Investors. Momentum Traders can cause markets to trade lower than this level, but Value Investors buying brings the market back over time. Once Momentum Traders turn more positive, the SP500 can and has greatly exceeded this level as economic activity expands beyond investor expectation.
At current levels, the S&P 500 ($SPY) is fairly valued historically. With substantial future economic expansion from housing ($XHB) and construction spending yet to reach historical levels, I estimate stock prices have considerable upside the next 5yrs+.