Jeremy Siegel Sees the Dow at 15,000 Soon

By on February 14, 2012

Wharton professor and author of Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies, 4th Edition, Jeremy Siegel, presented his case that the Dow could hit 15,000 to CNBC’s Fast Money crew.

Commenting on this week’s Barron’s article by Gene Epstein speculating that the Dow could hit 15,000 by the end of next year, Siegel believes the most convincing argument is valuation. He said we are well below the long-term average PE ratio of 15 when taking into account interest rates.

Siegel stated there is data showing if you haven’t done well in the last 5 years then you have a 2 out of 3 chance of reaching 15,000. When you put the two factors (valuation and historical precedent) together reinforcing each other, he believes there is a strong case for the market.

Siegel considers the notion of Dow 15,000 by the end of 2012 modest, achievable with back to back years of 8 percent returns. He added these returns would only be slightly above the long term average, but good returns in the current low interest rate environment.

Siegel see the economy strengthening this year and the Dow having a 50/50 chance of hitting 15,000 this year. He lays odds of 70% or more that the Dow could hit 15k next year. Siegel cautioned that we know nothing is sure in the market, but we can base it on past behavior, probability and valuation.

When asked by Fast Money’s Karen Finerman what would happen when interest rates rise, Siegel stated when the Fed abandons its low interest rate policy it isn’t a problem for the market. The problem for the market comes at the end of the cycle. Siegel actually doesn’t expect the Fed will be able to maintain extraordinarily low interest rates until the end of 2014. However, he believes growing corporate profits will overwhelm the negative effects of higher interest rates.

The interview continued with Siegel’s views on headline risk and a potential downside risk of a Lehman-type event in Europe.

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