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January 26, 2016 at 08:25 AM
“Am I the last bull standing?” Wharton professor Jeremy Siegel asked the crowd of 2,000 advisors and others at the Inside ETFs 2016 conference in Hollywood, Florida, early Tuesday.
“OK. I am the token bull of the conference,” Siegel answered to applause. “There is no reason to apply the bubble label” to today’s equity market.
While he joked that he “feels like an endangered species,” the financial specialist laid out a case for equities.
Unlike DoubleLine CEO Jeffrey Gundlach, who spoke at the conference on Monday, Siegel says he doesn’t see a need to demonize the Federal Reserve or fully anticipate multiple interest-rate hikes.
“There is no reason to say the Fed is artificially inflating value. If that was true, we would see a 25-plus PE ratio,” he said.
“Everyone fears the Fed and [multiple] hikes,” Siegel said. “But since 2008, they have predicted [a series of hikes] and never did it. The market knows they are never going to do it.”
In fact, he adds, the market is indicating that only about one-third of the hikes the Fed has described as a possibility are likely to happen.
“Read the October meeting minutes,” explained Siegel. “The Fed is not moving to [support higher rates] this Wednesday, the Fed is not likely to do so in March, and it may or may not do so in September. It will only do so if the economy is healthy and if oil prices are stable. And with the current uncertainty, I do not think they will do so.”
The finance professor urged the Inside ETFs crowd to recall that in September, the Fed did not raise rates due to market volatility. “And given what we have had this past month, I think it is short-sighted to not think they will take this into account. The Fed is basically going to be on hold.”
Conditions then could become “really normalized,” Siegel says. “That is going to be really good for earnings and for the market.”
Price-to-Earnings
The Wharton professor also explained why the current level of price to earnings — just under 17 on average — is acceptable.
And he acknowledged that bearish sentiment is rampant: “The bearish indicators of August … were the worst since Lehman Brothers collapsed. They exceeded those of Sept. 11, 2001 … over China and emerging-markets concerns.”
