Wharton professor Jeremy Siegel says the stock market’s current valuation represents a “really good deal” for investors.
The S&P 500 is trading at a forward price-to-earnings ratio of about 19x, slightly below its historical average.
Siegel expects the stock market to hold up relatively well despite higher interest rates and a rising US dollar.
Wharton professor Jeremy Siegel says long-term investors trying to build wealth should keep buying stocks.
Siegel told CNBC on Tuesday that the stock market’s valuation represented a “pretty good deal” even as investors worried about a possible recession, higher interest rates and higher inflation.
of S&P 500 It currently trades at a forward price-to-earnings ratio of around 19x, which is slightly higher than the 5-year and 10-year historical averages of 18.7x and 17.5x, respectively, according to data from FactSet.
Siegel says current stock market volatility implies long-term returns of at least 5% after inflation.
“If you’re a long-term investor, it’s going to be a very healthy margin for building wealth over the long term,” Siegel said.
As for the short term, Siegel expects the stock market to remain relatively flat through the end of the year, despite persistent concerns. What can the Federal Reserve do about inflation and in response to that inflation?
That’s because the economy is holding up well, and strong economic data is ultimately good for stock prices, even if it means more interest rate hikes.
“In terms of the strength of the economy, and that’s what the stock market likes. That’s why, when we have a little warm PPI, a little bit high CPI, if we get good accurate economic data in there, you’re going to see the stock market rally. And that’s why I think at the end of the year, a strong, not growing, strong equity market. “What we can have,” Siegel said.
The Fed will make an interest rate decision at the conclusion of its meeting on Wednesday, with markets currently expecting the Fed to leave interest rates on hold this month and possibly make one more hike before the end of the year.
Finally, investors shouldn’t factor in the Fed’s interest rate cuts because that can only happen in the event of some sort of economic shock.
“I think the only thing that’s really going to push them down is the unemployment rate going up, the big slowdown in the employment picture,” Siegel said. And that’s probably bad news for the stock market.
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