Jeremy Siegel in his office. (Photo: AP)

Even longtime bull Jeremy Siegel, finance professor at the Wharton School, was surprised at how the markets have bounced back.

On Friday, the Standard & Poor’s 500 Index was headed toward its fifth weekly gain and oil was fluctuating near a three-month high.

The S&P 500 pushed a rally from its February low to 12%, erasing the worst-ever start to a year, Bloomberg reported. Meanwhile, U.S. crude slipped below $40 a barrel.

“Even I’ve been surprised at how rapid the market’s come back,” Siegel told CNBC’s “Squawk Box” on Friday. “In January and early February there were two major negative forces on the market. One was the total collapse of oil prices down to $26. The second was a very real threat of a big devaluation from China, which could set off a currency war in the Far East.”

Those two deflationary forces, which Siegel called “very, very negative,” have since dissipated. Because of this, the token bull is much more confident in the markets.

“I can’t be wildly bullish certainly at this particular point, but I do feel a lot better than I did in February,” Siegel said.

Siegel has his eye on oil and the dollar as the two stabilizing – or destabilizing – forces on the market’s behavior.

“If it weren’t for oil, we would have the S&P earnings up this year. If it weren’t for the dollar being so strong, we would have it up even more,” he said. “Now that we’ve had a recovery of oil and the Fed being dovish, which that means that puts a lid I think on how strong the dollar’s going to be, we could see a rise in earnings.”

If this kind of stability continues, Siegel thinks S&P 500 earnings could improve as much as 15% this year.

“Now I think we have to wait a little bit to see those earnings rise because year-to-year comparisons are not looking good,” he said. “But if we do get that stability, I think we could have that 10, 12, 15% gain that I thought last December that looked a pretty bad call as we moved into February this year.”

His bullish outlook is very much tied to  thw performance of oil and the dollar.

“I think oil has to be above $40,” he told CNBC. “I think we need to have the dollar not to continue to rise. I think those two things happening could lead us to a good market. If oil falls back down and the dollar continues to rise, I see no way the market could go forward.”

Siegel is also wary of the Federal Reserve’s effect on the market.

“I was surprised [the Fed was] as dovish as they were,” he told CNBC. “If core inflation continues to move up and if they do raise [rates] twice, that’s going to be a challenge for the market.”

While the Fed has largely talked about the possibility of raising rates twice this year, Siegel thinks the Fed is only expecting one hike.

“I really think the market is expecting at most once this year,” he said. “That’s what they’d be happy with. Two times increase, we would have to see some really strong economic activity to get over that and still have a stable market. The Fed could still be a challenge going forward.”

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