Jeremy Siegel: Dow 16,000 by End of Year 2013
Jeremy Siegel, Wharton University professor of finance, was on CNBC a few days ago and said the market was not just going up only because of the Fed’s Quantitative Easing (QE); a popular viewpoint.
Siegel said stocks were one of the few reasonable priced assets available, which would not include gold, despite its recent swoon. Siegel said stocks are at their average valuation when interest rates used to be 5-7 percent.
Siegel stated the bull market has many more legs left. His year-end target for the Dow is 16,000 and 1,700 for the S&P 500. “By the end of 2014 we could see 18,000 on the Dow,” he added.
Siegel isn’t concerned about the Fed raising interest rates because they wouldn’t do that unless the economy was getting better, which means even higher corporate profits.
The interview continued with Siegel commenting on which types of stocks he likes, and the effect of a strong dollar on his bullish forecast.
In January, Siegel forecasted the Dow would surge past 15,000 this year based on strong earnings and expanding earnings multiples [link].
SMA Comment: As I mentioned in late March [link], the stock market is on shaky ground. It broke through its old nominal high based on unfounded optimism regarding a recovering economy. There is even talk of the Fed backing away from its QE program. However, at this point the Fed is “pushing on a string” as the positive effects from their bond buying strategy are minimal. Bernanke and Company appear powerless to affect any meaningful change on employment, as evidenced by the recent abysmal jobs report. With the caveat that I’m occasionally wrong, stock market rallies from this point on should be taken as opportunities to sell because we are likely entering a prolonged bear market in equities.