Long-term investors should ‘absolutely buy now,’ says Jeremy Siegel — why the world-renowned Wharton professor sees ‘excellent value’ in today’s stock market
With the Dow, the S&P 500, and the Nasdaq all deep in the red year to date, it might be tempting to hit the sell button and get out of this ugly market completely.
But a prominent economist suggests otherwise.
“If you’re a long term investor, I would absolutely buy now,” Jeremy Siegel, professor of finance at the Wharton School of Business, tells CNBC. “I think these are absolutely great long-term values.”
Here’s a look at why the professor is so optimistic.
You could be the landlord of Walmart, Whole Foods and Kroger (and collect fat grocery store-anchored income on a quarterly basis)
What do Ashton Kutcher and a Nobel Prize-winning economist have in common? An investing app that turns spare change into a diversified portfolio
Fed should be forward looking
One of the reasons behind this year’s stock market slump is inflation. Consumer prices were rising at their fastest pace in 40 years. While the headline CPI number has cooled off a bit recently — August’s inflation rate was 8.3% year-over-year — it’s still worryingly high.
To tame inflation, the Fed is raising interest rates aggressively. The central bank increased its benchmark interest rates by 75 basis points last month, marking the third such hike in a row.
If rampant inflation continues, more rate hikes could be on the way. And that does not bode well for stocks.
Siegel points to one segment of inflation that is cooling down: housing. But that isn’t properly reflected in the index numbers.
“We pointed out that the way these indices are constructed, that housing costs are very lagged, and they’re going to continue to go up, even though as we saw the Case-Shiller Housing Index, and the National Housing Index, housing prices are going down,” he says.
Siegel suggests that instead of making decisions based on lagging indicators, the Fed “has to be forward looking.”
“They have to look at what’s going on in the market, in the housing market, in the rental market, in the commodity market.”
The pullback in stocks has been painful, but that’s exactly why this could be an opportunity.
The reason, Siegel explains, is that the fall in stocks has brought their valuations down.
“When you’re talking about 16 times earnings, and even if they’re clipped by a recession, and you shouldn’t just base it on recession earnings, you should base it on longer term earnings, which I think are very favorable … I think these are just absolutely excellent values,” he says.
Of course, having attractive valuations does not mean stocks won’t drop further.
“Could it go down more? Of course, in the short run. In bear markets, it’s gone down more,” Siegel admits, adding that “anything can happen on the short term.”
No lost decade
The outlook can be bleak, even for those who already made billions from the markets.
Billionaire investor Stanley Druckenmiller recently said that stock market returns could be flat for the next decade.
Ray Dalio’s Bridgewater Associates warned earlier this year that we could be facing a “lost decade” for stock market investors.
Siegel remains optimistic.
“I disagree with that completely that the Dow or S&P 500 would be flat [over the next decade],” he says.
“We added 40% to the money supply since the pandemic began in March of 2020. Earnings have historically moved up just with inflation and the money supply. So stocks should be 40% higher than they were.”
The economist explains that at one point, stocks were 50% to 55% higher than pre-pandemic levels. But with the recent pullback, they are just 20% higher. And that means investors have something to look forward to for the next decade.
“To say that 10 years from now, we’re going to have the same Dow when the earnings yields that I see there on the market, show that your returns are going to be probably in the neighborhood of 6% per year after inflation.”
What to read next
Warren Buffett likes these 2 investment opportunities outside of the stock market
‘Imagine you are laid off’: Suze Orman’s tough-love tips to prepare for the recession ahead
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
MARKETWATCH OPTIONS TRADER The stock market had two strong rally days this week. That was mostly because of the massive oversold condition that existed, and it was aided by news from Europe that central banks were easing off on the increase in interest rates.
Julio Urias made his final tune-up for the postseason and case for the Cy Young Award a solid one, though the Colorado Rockies went ahead after he left and beat the Los Angeles Dodgers 5-2 on Tuesday night. Urias pitched five innings and allowed two runs — both on solo homers. “It’s incredible,” Urias said through an interpreter about winning the title.
The financial markets have been spooked by the aggressiveness of the Federal Reserve, particularly about its focus on the potential for enduring economic pain and rising unemployment. Let’s look at what that plan is and what it will take to change the Fed’s path. The Fed’s language has changed more than its policy has.
WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen announced a $950 million loan to the Clean Technology Fund (CTF), a multilateral trust that helps developing countries accelerate their transition from fossil fuels to clean energy. The contribution, the first of its kind from the U.S. Treasury, makes good on a U.S. pledge made at the 2021 Group of Seven summit alongside other G7 countries, Treasury said.
The Colorado baker who won a partial Supreme Court victory after refusing on religious grounds to make a gay couple’s wedding cake a decade ago is challenging a separate ruling he violated the state’s anti-discrimination law by refusing to make a cake celebrating a gender transition. A lawyer for Jack Phillips on Wednesday urged Colorado’s appeals court — largely on procedural grounds — to overturn last year’s ruling in a lawsuit brought by a transgender woman. The woman, Autumn Scardina, called Phillips’ suburban Denver cake shop in 2017 requesting a birthday cake that had blue frosting on the outside and was pink inside to celebrate her gender transition.
The yield on the benchmark U.S. 10-year Treasury rose on Thursday after a reading on the labor market showed unemployment benefit claims rose by the most in four months last week ahead of the monthly payrolls report. Investor focus now turns to the September jobs report, with expectations for nonfarm payrolls to increase by 250,000 jobs and the unemployment rate to stay unchanged at 3.7%. “Everybody is kind of waiting, that’s why we are a little bit rangebound both on stocks and bonds because if that jobs report print is really hot, that could be a big negative for bonds and crush the stock market, or vice versa,” said Jay Hatfield, founder and CEO of Infrastructure Capital Management in New York.
Billionaire investor Carl Icahn scored a $250 million gain on Twitter stock by calling Elon Musk’s bluff
The Icahn Enterprises chief built a $500 million stake in Twitter as he expected Musk to ultimately buy the social media company.