The best case for stock bulls is to say that since stocks are mostly owned by the upper 10% of society and these people’s earned income have gone way up, compared to blue collar workers, due to ever-increasing complexity of various professions such as engineering, medicine, the practice of law, CPA practice, etc. then stock prices are a reflection of these professional’s ability to earn and save rather than GDP or the average person’s earnings. The earnings of professionals went up far faster than workers because a talented professional today can be far more productive than 50 years ago; by contrast, an uneducated blue collar worker’s productivity didn’t go up that much. Assuming a finite amount of stock and a rapid growth of professional’s earned income that could contribute to a stock boom for partially legitimate reasons. It is important for a stock market bear to reverse engineer the bulls’ case so as to be open minded to different views.
At some point even if the ratio of earned income to the number of shares increased there a point where it simply makes no sense to overpay for stocks. If the whole purpose of owning stock to own a stream of earnings then at some point a too high of a PE ratio means that people shouldn’t buy. There is always the risk that earnings could drop or that PE multiples could drop so if PE’s are elevated to bond-like ratios, then to be fair, their risk would have to be reduced to bond-like levels. The risks of stocks have definitely not been reduced to bond-like levels.
Regarding the idea that professionals have god-like powers to earn a rapidly growing risk-free stream of earned income, many of them can get sidelined and demoted, they are not immune from risk, including the risk of having excessive debts to service, disability, punitive progressive tax increases, age discrimination, divorce, etc. that can cut down their earnings capacity or at least weaken them to where they can’t save. It seems that anecdotal stories of young professionals having to carry an excessive burden of student loans and jumbo mortgages means that the younger generation of professionals, especially two income couples in a high tax bracket, may end up not being able to save a huge amount and thus they won’t be able to participate in a bidding war for stocks.
The earned income growth among professionals may help explain why stocks went up so much but ultimately those who benefited from rising earned income will at some point refuse to buy overpriced stocks.
Many famous investors have said the key things that made stocks go up in recent years were increases in liquidity supplied by central banks, etc. such as the Quantitative Easing program or the Fed’s rate cutting programs.
If demography is destiny then consider that much of the population growth comes from low income type of people and that many affluent people are better off than their adult children. Thus today’s young adults in the skilled upper middle class may have less family wealth than their parents did by the time the younger generation finally retires. This means the forces of rising earned income among affluent professionals that lead a stock boom may be coming to an end and then the new level of upper middle class rising prosperity won’t be a strong enough force to offset the problems of demography. The demographic pattern would not be an absolute decline but rather a decrease the growth rate.
To be fair one should explain why so much debt was created since 1995 and where did the money go? It clearly didn’t go to consumption and in the post 2008 era not much went to capital improvements, so did the money go to creating an asset bubble?

The debt fueled asset bubble may be related to monetary factors such as loans issued, velocity of money, etc. In a recession credit growth goes negative as people pay down loans. They pay down debt by selling stock. The Fed seeks to encourage more borrowing to end recessions and this goal could be partially aided by encouraging stock ownership so as to reverse the decline in borrowing. If it becomes desirable to borrow when a new boom starts then people may have excess cash and decide to invest it in stocks. The possibility exists that in order to cure a recession the Fed must encourage the type of lending that results in excess cash accidentally going into stocks; thus the monetary system inadvertently supports continuous ongoing bubbles as a byproduct of creating credit growth. The question is, would the nature of the system change to where other monetary goals, acting in a different direction, end up removing liquidity from stocks thus putting downward pressure on them. Investors need independent financial advice about the risks of being fooled by bubbles.