Gene Epstein of Barron’s peruses recent news reports that highlight rising stock prices, then asks: What about inflation?

Time to pour inflationary rain on the bull parade in the stock market. If you adjust by the consumer price index, the bull market looks way overrated.

The Standard & Poor’s 500 index has “now logged 33 all-time highs this year,” reported the Associated Press on Sept. 5, when the index hit yet another “record close” of 2007.7. Such talk conjures up a revival of the go-go years of the 1990s, when new all-time highs kept recurring.

Back in the ’90s, however, the new peaks could withstand inflation adjustment and legitimately be new peaks. This year’s streak of 33 has been merely nominal. In today’s dollars, as the table shows, the S&P 500 still has more than 100 points to go before exceeding its all-time closing high set on March 24, 2000. …

… From 1958 to 1968, the S&P scored huge gains in both nominal and inflation-adjusted terms. It also helped that price inflation was relatively tame, running lower than over the recent 14 years.

The Great Inflation from the late-1960s through the mid-1980s punished the real values of stocks. The famous BusinessWeek Magazine cover story of August 1979, “The Death of Equities,” proved egregiously wrong about the stock market’s demise, but did include the semi-valid subhead, “How Inflation is Destroying the Stock Market.”

… [T]he nominal value of the S&P had to triple over 19 years, from November 1968 to August 1987, before it barely exceeded its inflation-adjusted peak of Nov. 29, 1968.

Social Security checks are indexed to the CPI, as are tax brackets, union contracts, child support payments, and the payouts for bonds known as TIPS, for Treasury Inflation-Protected Securities. The S&P 500 should be subject to the same discipline, especially since it tracks the value of many companies that charge CPI-based prices.