Yahoo Finance 'I don't see this stopping anytime soon': The stock market is headed toward new highs, says Wharton finance professor Jeremy Siegel. Here's why he's so bullish
Earlier this year, droves of economists and investment institutions were predicting a recession and hard landing. Now, some are less certain.
In fact, Jeremy Siegel, professor of finance at the Wharton School of the University of Pennsylvania, believes the stock market could be headed to new highs.
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He’s not alone. Bank of America has also predicted that the S&P 500 could soar this year.
Here’s why the pendulum of Wall Street’s sentiment has swung from pessimism to optimism in the eyes of some.
Better-than-expected results
The recent shift in sentiment seems to be driven by fundamentals. At least according to Siegel.
"This is such a strong market,” he recently said on CNBC’s Closing Bell. “Lower inflation and stronger economy and good guidance and good profits — what's to stop this market now?"
Siegel says the strength of recent economic data and earnings results was surprising even to him.
“I was worried about what was going to become of the economy in the second half [of the year],” he said. “And I'll tell you … I don't know anyone who thought that [GDP in] the first half would grow faster than 2%. … Even the Fed was way below that in its estimate.”
But that’s exactly what happened: GDP increased at an annual rate of 2% in the first quarter of 2023 and 2.4% in the second quarter, according to the federal government’s estimates.
Given the strength of that all-important macroeconomic indicator, and given that inflation slowed in June to 3%, its lowest level in years, Siegel says he has no reason to believe that strong growth in the stock market will be abated.
“I don’t see this stopping anytime soon," he said. Inflation may have risen modestly in July and then again for August, but at 3.7%, it's still trending downward overall compared to earlier this year.
When asked to comment on the possibility that stocks might be overpriced, Siegel claimed his research suggests that the S&P 500 is trading at 20 times forward earnings. Tech stocks are trading above that target and could be considered overbought, but cyclical and value stocks are trading below this average at valuations he considers “extremely reasonable.”
“I don’t regard valuations as scary,” he concluded.
Read more: How can I stop the pain and make money in this nightmarish market? Here's 1 simple way you can protect your nest egg
'Looney Tunes'–eque uncertainty
But other experts do consider the valuations scary, or at least cause for caution.
Antoine Forterre, CFO of Man Group, the world's largest publicly traded hedge fund firm, told Bloomberg that the current market environment reminds him of a “Looney Tunes character who’s running above the air and you’re not sure if they’re going to crash or a parachute is going to appear.
"The key word is ‘uncertainty.’”
Some retailers, such as Macy’s and Costco, have been forecasting lower consumer spending, while Americans largely depleted their pandemic-era excess savings, according to the Federal Reserve Bank of San Francisco. So, despite robust numbers in the first half of the year, things could turn suddenly in the second half.
Only time will tell which analysts had it right.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
