Tags: Siegel | Dow | stocks | 17 | 000

Wharton’s Siegel: Dow Could Hit 17,000 Next Year

Friday, 30 March 2012 07:54 AM

The Dow Jones Industrial Average could soar to 17,000 in 2013 from its current levels of around 13,000 as stocks are still attractively priced, says Jeremy Siegel, a market historian at the University of Pennsylvania's Wharton business school.

Stocks have risen in recent months, but they're still down on a longer-term basis, which gives them room to climb.

"Not only based on past evidence on returns after we've had bad five- and 10-year periods, which of course we've had in the past, but I think most persuasively because of valuation of the market," Siegel says.

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"I think compared to bonds, it's one of the cheapest markets, stock markets, I've seen."

The Japanese earthquake and the euro crisis have hampered the market, but stocks will pick up even if earnings cool a bit, as some analysts predict.

"I know earnings are slowing down but we don't need much growth because earnings are so good compared to prices in this extremely low interest rate environment. I think it is the alternative that investors are going to turn to for income."

Retail investors remain on the sidelines of the equities markets mainly due to volatility, but that will change as bond funds lose their luster as the economy picks up and interest rates eventually rise.

"I think they're going to get worried about all the bond funds that they plowed their money into in the last five years, which have done very well until about two weeks ago, because I see no way rates can stay anywhere near this low," Siegel says.

"Then if you don't have bonds to go to, where are you going to go? I think dividend paying stocks, value stocks, in fact the entire market is very attractive."

Other experts agree that bonds won't shine as they have in the past, which calls for greater diversification.

"For bond markets: favor higher quality, shorter duration and inflation protected assets," Bill Gross, founder of Pimco, which runs the world's largest bond fund, writes in an investment outlook.

"For stocks: favor developing vs. developed. Favor shorter durations here too, which means consistent dividend paying as opposed to growth stocks."

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