Jeremy Siegel: Stocks 'Creeping Closer to Fair Market Value'

Wednesday, 03 Sep 2014 11:15 AM

By Dan Weil

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Since the beginning of 2014, stock guru Jeremy Siegel, professor of finance at University of Pennsylvania, has predicted that the Dow Jones Industrial Average will reach 18,000 by year-end.

While he is sticking to that forecast, "we are creeping closer to fair market value, which I think is approximately 18 times S&P earnings," Siegel tells CNBC.

The S&P 500 had a forward price-earnings (P/E) ratio of 16.8 and a trailing P.E ratio of 19.2 Friday, according to Birinyi Associates. The Dow stood at 17,125 near midday Wednesday.

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"We're not over with this bull market," Siegel notes. "Our economy is the best of the three major engines in the world, and that's why I have faith in U.S. stocks."

He expects that Friday's jobs report will show non-farm payrolls rose more than 200,000 in August. That would mark the seventh straight month of gains above 200,000. "This looks good for earnings," Siegel earnings. "We're going to get about $120 on the S&P [earnings]. I like that."

He doesn't anticipates sharp rises in interest rates that would hurt stocks.

"We've lived long enough to see Treasury rates at 5, 6, 7, 8 percent. I'm not scared of 3 percent. I'm not scared of 3.5 percent."

James Paulsen, chief investment strategist at Wells Capital Management, thinks the five-year bull market may have another five years to go.

But "I am a little worried," he tells The Wall Street Journal. Stocks may plummet 15 percent before the end of the year, Paulsen notes. "Bull markets aren't typically straight-line events."

Editor’s Note: Get These 4 Stocks Before 399% Stock Market Rally!

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