Wharton's Jeremy Siegel Foresees New Highs Amid 'Goldilocks' Scenario: 'What's To Stop This Market Now?'

Zinger Key Points
  • Jeremy Siegel says it is the goldilocks scenario of lower inflation, a stronger economy, good guidance and good profits.
  • The economist said he does not see any significant overvaluation in the market.

As the stock market resiliently pushes ahead despite the lack of clarity on many fronts, investors are debating the sustainability of the rally. An economist is of the view the upward momentum will likely remain intact.

What Happened: The market could be in for new highs, said Wharton professor Jeremy Siegel in an interview on CNBC's Closing Bell on Friday. “This is such a strong market,” he said. “Companies are now much more confident in issuing guidance and internals are improving.”

The economist also noted that the employment cost index for the second quarter – an inflation measure, came in below expectations. It is the “Goldilocks scenario” of lower inflation, a stronger economy, good guidance, and good profits, he said.

“What’s to stop this market now,” he said.

Pleased With Powell: Siegel said he is pleased about the fact that Federal Reserve Chair Jerome Powell acknowledged that there are two-sided risks.

"Every meeting is a live meeting. There is no preconceived notion about whether they are gonna go up or down there," the economist said. The Fed is going to look at the data, he added.

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Siegel said he was concerned about what is to befall the economy in the second half when the money supply went down and decelerated by the greatest rate in history. He also conceded that the over 2% growth in the first half came as a surprise.

So inflation coming down, stronger economy. I don’t see this stopping anytime soon,” the economist said.

Valuations Not Scary: When asked whether current elevated valuations are justifiable, Siegel said the S&P 500 is trading at 20 times the next 12-month earnings. That's about average, he said, citing his research.

Tech stocks are trading at 30 times earnings, and the value and cyclical stocks, so fearful of inflation, are trading at 14, 15, or 16 times, the professor said. That's extremely reasonable, he said. One may argue that the tech stocks are a little bit over their skies in terms of how far they have gone, the economist said, adding “I would prefer the value stocks for the long run.”

“But when I look at this market as a whole, I do not see any significant overvaluation,” Siegel said. He noted that back in the dotcom days the S&P 500 was trading at over 30 times earnings in a much higher interest rate environment than currently.

“That was scary. I don’t regard today’s valuations as scary,” he said.

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