Tags: Siegel | Dow | 18000 | fair market

Wharton's Siegel: Dow Could Break 21,000 This Year

Thursday, 02 Jan 2014 07:50 AM

By Dan Weil

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The stock market should keep right on climbing this year amid strong earnings and economic growth and an expanding price-earnings multiple, says market guru Jeremy Siegel, a finance professor at the Wharton.

Fair market value for the Dow Jones Industrial Average stands at 18,000, an 8.6 percent increase from Tuesday's close of 16,577, he tells CNBC.

But, "one thing we know is that bull markets usually don't stop at fair market value," Siegel explains.

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"Bull markets usually carry 10 to 20 percent beyond that. I'm not going to say that's going to happen this year. I'm just saying it certainly could happen."

A 20 percent rise beyond his fair value would put the Dow at 21,600.

Siegel bases his forecast on 5 percent profit growth. "And that very well could be quite conservative," he notes. "When you include the buybacks, leverage, etc., we could have another 8 to 10 percent earnings. And that would drive the fair market value from 18,000 to 19,000, maybe even a little bit higher."

As for GDP, he expects growth of more than 3 percent, perhaps even 4 percent, in 2014.

And while many peg a fair value price-earnings ratio at 15, Siegel says that in this low interest-rate environment, it should be 18 to 19.

Many experts forecast modest market gains for 2014 after the Dow generated a 29.7 percent total return in 2013.

"Our position is the year will bring a much more moderate return and more volatility," Stuart Freeman, chief equity strategist at Wells Fargo Advisors, tells MarketWatch.

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