Wharton's Jeremy Siegel: Bull Market Isn't Over, Dow Will Hit 18K

Monday, 25 Nov 2013 01:31 PM

By Dan Weil

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The bull stock market still has plenty of life left in it, says renowned market guru Jeremy Siegel, finance professor at University of Pennsylvania's Wharton School.

"My data shows that the fair market value based on current [projections of future] earnings for the Dow [Jones Industrial Average] is probably around 18,000," he told CNBC. That would represent a 12 percent gain over Monday morning's level of 16,096.

"Now, it doesn't mean we're going to get there right away or we're going to get there in a straight line," Siegel said. He noted that the stock market has gone a long stretch without a 10 percent correction (more than two years).

Editor’s Note: New Video: Obama Plans to Redistribute Seniors’ Wealth

"But I don't think this bull market is over yet. I still think there's good gains to come," Siegel said.

As for earnings increases, they have totaled 10 to 12 percent this year, "which is pretty good in a very slow economic growth situation," Siegel said. GDP growth averaged 2.1 percent for the first three quarters of 2013.

Current projections call for earnings growth of 8 percent next year. So, "if we have a little speed-up in economic growth, . . . it [earnings] could go higher," Siegel said.

"We have had disappointments through the last few years from earlier projections. [But] 2013 could be one year where we come closer to what analysts are expecting."

Jonathan Golub, chief market strategist at RBC Capital Markets, also expresses optimism for stocks. While he's not expecting this 26 percent jump for the Dow to repeat next year, "stocks at this level still look relatively cheap," he told CNBC.

The current levels of bond yields imply a price-earnings ratio of 16 to 18, but the market only stands at 15, Golub says.

"I do think there's definitely upside here," he said. "I think it's not only going to be multiples [expanding], but earnings are likely to be better in 2014 than this year. And you're seeing a number of indicators that the economy is picking up from a low base."

As for the possibility of a market correction, "what you find is that there are a number of things which cause big corrections, but they tend to be things like recessions or oil shocks and not simply that the market got ahead of itself," Golub said.

The outsized gains for some technology stocks, biotechnology stocks and others don't create a concern, he says.

"This year actually looks very normal in terms of a concentration of leadership. So there's nothing which looks like a bubble in this year. Could we get there? Maybe, but it's not a 2014 event. It'll be much further out."

As a whole, major stock-market strategists, who tend to be bullish, forecast very tempered gains for next year.

Of nine analysts who already have offered their 2014 predictions, the average is an increase of 4.1 percent from Friday's close, according to Birinyi Associates, The Wall Street Journal reports.

"It's very unlikely that next year will be a year like this," David Bianco, Deutsche Bank's chief U.S. equity strategist, told the paper.

Editor’s Note: New Video: Obama Plans to Redistribute Seniors’ Wealth

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