Market valuation

With the current low rates available on treasury bills, and the current low inflation rate, what is an appropriate P/E ratio for stocks. Now excepting variations based upon growth and individual stock expectations, if we assume that the additional risk in the stock market requires twice the returns you can get in a 10 year t-bill, that would be 7%. Now, that is a P/E of 14. However a 3.5% premium over the 10 year is a very high risk premium and generally we would expect a premium of 1.5 to 2% for stock returns or a resulting p/e of 18. Based on what I believe profits in the next quarter are going to be for the S&P 500, that would result in a level of at least 1200. Now if growth is greater, the valuation would be higher.

As I hear analyst after analyst talking about how the market has gotten ahead of itself, the only justification I ever hear is that current profits are based on cost cutting and without revenue growth, they are unsustainable. I fail to understand why if everything stayed the same the profits would go down. The only real likelihood is that if top line growth appears, and it will, that profits will be greatly higher.