Wharton economist Jeremy Siegel says oil prices are our biggest problem, but the stock market may go up another 10-15 percent anyway.
“If you would tell me that oil prices would level off at this level for the rest of the year, I could easily see 10-15 percent increase on stock prices, just on the basis of what earnings growth we have,” Siegel tells CNBC.
“If we get back to the $147 a barrel oil we had in the summer of 2009, that could be a problem for the market and the economy.”
|Jeremy Siegel (AP photo)
Siegel also sees what he calls “a knee-jerk reaction” of investors buying bonds in response to world political problems, as when investors bought bonds as oil prices rose in the 1970s.
“When oil prices go up, you don’t want to be in bonds,” says Siegel. “You want to be in real assets, which are stocks.”
Siegel says the major reason stocks are up now is earnings, not QE2. “Stocks are where they are today because we’ve had fantastic earnings in a low-interest environment,” he says.
And as for gold and silver? They may do well in the next few months, but looking back five years from now, precious metals’ investors will be “disappointed in their purchases.”
According to estimates compiled by S&P and Bloomberg, S&P 500 companies' 12-month profits are projected to reach a record $91 a share by August, 2011. That would be the highest-ever level on an inflation-adjusted basis.
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