How would an answer based on fundamentals even look like? Nobody can predict the future.

> How would an answer based on fundamentals even look like?

Start with demographics. Layer on productivity growth and you have a first-order approximation of national productivity. Figure gross margins and from that net margins, as well as average corporate tax rates–boom, you have the economy's profitability. Estimate a pay-out rate and you get a high-level return estimate. It's very approximate, but it's theoretically solid for any closed economic system. (Cf: natural resource inputs are not properly accounted for.)

Let's say you do this exercise and arrive at a discounted cash flow model that accurately predicts a 5-10% YoY appreciation in value for the S&P index.

How do you explain why this appreciation in value isn't arbitraged away, as suggested by GP? In his words, "if 9.7% long-term returns were guaranteed, wouldn't everyone just borrow 30-year loans on margin at 5% interest rate and invest it in S&P?" This would effectively drive up the current day price and eliminate any projected future growth in index price -- invalidating the hypothesis that the S&P price will continue growing in the future.

It's not arbitraged away because it's not guaranteed.

How would you account for central bank actions?

We can't predict the future with certainty, but we can certainly build models.

I'm basically saying I'd like a somewhat bottoms up approach to modelling the S&P index where the inputs can explain the x% YoY increase in price.