The S&P 500 stock market value is modeled using a state space model that focuses on input-output relationships. Earnings and interest rates are inputs that affect the value of the S&P 500. The model fits the data well and shows that stock prices tend to follow the value of the stocks. The value determines the overall trend of stock prices, while random buying and selling pressures cause fluctuations around this value. The 1987 stock price bubble is clearly visible as a gap between the actual stock price and its value.