With the advent of high frequency trading, I am not sure what the future of the stock market might be.
Over half of all volumes are the high frequency trades from the big investment banks that are surely distorting the market. It may be that HF trades caused the plunge last month, and can hold the market at current levels no matter what happens in the economy.
The economy is spirialing down. Jobs are being lost even with a trillion in stimulus. Sooner or later the secondary jobs market will suffer. State, local government and Federal employees will lose their jobs as the spiral move further down.
At some point, the market should react in the same downward direction. U(6) the broader measure of unemployment is around 17%. This cannot support the market at current levels. The SGS alternative measure is closer to 22%. Dow jones companies cannot continue to keep current valuations for long as sales start to really decline. Plus, current valuations are tied to the ridiculously low interest rates available due to free fed money.
If fed funds rates were where they belong (around 6% where inflation really is) the market would be overvalued by two times.
The dow level will be completely dependent on how many people keep drinking the coolaide