Long-term investors should ‘absolutely buy now,’ says Jeremy Siegel — why the world-renowned Wharton professor sees ‘excellent value’ in today’s stock market

Jeremy Siegel says long-term investors should

Jeremy Siegel says long-term investors should “buy now” — why the world-renowned Wharton professor sees “excellent value” in today’s stock market

With the Dow, S&P 500, and Nasdaq all deep in the red year to date, it might be tempting to hit the sell button and exit this ugly market entirely.

But a prominent economist suggests otherwise.

“If you’re a long-term investor, I’d buy right now,” Jeremy Siegel, a professor of finance at the Wharton School of Business, told CNBC. “I think these are absolutely great long-term values.”

Here’s a look at why the professor is so optimistic.

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The Fed should be proactive

One of the reasons for this year’s stock market slump is inflation. Consumer prices rose at their fastest rate in 40 years. Although headline CPI numbers have cooled somewhat recently – inflation was 8.3% yoy in August – it is still worryingly high.

To tame inflation, the Fed is aggressively raising interest rates. The central bank hiked interest rates by 75 basis points last month, marking the third such hike in a row.

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If runaway inflation continues, more rate hikes could be on the horizon. And that doesn’t bode well for stocks.

Siegel points to one segment of inflation that is cooling: housing. But that’s not properly reflected in the index numbers.

“We have pointed out that the way these indices are constructed, although as we have seen the Case-Shiller Housing Index and the National Housing Index, housing prices are very laggy and will continue to rise, the cost of housing is very laggy have seen go under,” he says.

Siegel suggests that instead of making decisions based on lagging indicators, the Fed “needs to be forward-looking.”

“You have to look at what’s going on in the market, in the housing market, in the rental market, in the commodity market.”

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‘Excellent value for money’

The pullback in stocks was painful, but that’s exactly why this could be an opportunity.

The reason, Siegel explains, is that the fall in stocks has lowered their valuations.

“If you’re talking about 16x earnings, and even if it’s going to be impacted by a recession, you shouldn’t just be basing it on recession earnings, but on longer-term earnings, which I think are very cheap… I think they are.” simply absolutely outstanding values,” he says.

Of course, having attractive valuations doesn’t mean stocks won’t fall further.

“Could it go any deeper? Short term of course. It’s gone down more in bear markets,” Siegel acknowledges, adding that “anything can happen in the short term.”

No lost decade

The outlook can be bleak, even for those who have already made billions in the markets.

Billionaire investor Stanley Druckenmiller recently said stock market returns could remain flat over the next decade.

Ray Dalio’s Bridgewater Associates warned earlier this year that we could face a “lost decade” for stock market investors.

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Siegel remains optimistic.

“I totally disagree that the Dow or S&P 500 would be flat [over the next decade],” he says.

“Since the pandemic began in March 2020, we have increased the money supply by 40%. Historically, returns have only increased with inflation and the money supply. So shares should be 40% higher than before.”

The economist explains that at one point, stocks were 50% to 55% higher than before the pandemic. But with the recent pullback, they are only 20% higher. And that means investors have something to look forward to over the next decade.

“To say that 10 years from now we’re going to have the same Dow if the earnings yields I’m seeing out there in the market show that your returns are probably going to be around 6% a year post-inflation. ”

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This article is informational only and should not be construed as advice. It is provided without any guarantee.

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