That means stock prices should rise accordingly. The increase in the number of buyers has naturally pushed up the price. To argue today that stocks are overvalued, you must believe that the risk premium, once so irrationally large and becoming rationally small, will move back to that irrationally large state again. The bears' view of the world is a contradiction. Now that investors have smartened up and begun to buy stocks, economists are accusing them of being screwy again.
People get greedy, and they think nothing can go wrong.
But 36000 or 40000 is not so much a precise target as the outer limits of a comfort zone for long-term investors. As long as rates stay reasonable, earnings rise with GDP and the risk premium keeps falling, stocks will remain the investment of choice. First, investors have become better educated about stocks, thanks in large part to mutual funds and the media. Look at 1998, a year in which, by some indicators, the stock market registered its highest volatility in history. Third, businesses themselves have restructured and become more efficient, thanks to shareholder pressure, global competition and computer technology.