Jeremy Siegel, the Ivy League economist and stock market guru,
who hails from the Wharton School of Business at the University
of Pennsylvania, has bold predictions for the stock market this
In a conference call organized by WisdomTree Investments
Thursday evening, the so-called "Wizard of Wharton" said the
S&P 500 could top 1,700 this year, rallying nearly 20%, with
the U.S. economy growing north of 3%.
"I think this year will be stronger than anticipated," said
Siegel, noting that the stock market has already topped its
September highs that preceded the fiscal cliff worries.
His rationale is that investors will have to put their money
in the stock market, especially dividend-paying stocks, as bonds
are due to for a correction and money market funds earn near-zero
When rock bottom interest rates -- currently yielding less
than 2% for the benchmark 10-year government bonds -- drift back
to normal levels above 2% or even 3%, bond prices will fall hard,
as prices and yields move in opposite directions.
Siegel believes the Federal Reserve will have to increase
interest rates as the economy strengthens, in part thanks to the
housing rebound, which could lift gross domestic product by 1% if
not more. Abnormally low interest rates resulting from the Fed's
economic stimulus plans have sent housing affordability to record
"Housing is going to drive the economy into 2014," said
Siegel. "Demographers say we need 1.5 million (housing units)
just to keep up with household formation."
The boost from housing will be strong enough to offset the
negative effects from the government spending cuts and the
payroll tax increase. Once the economic strengthens, corporate
earnings will rise and the stock market will see "multiple
expansion" as investors demand a higher "risk premium" for
"We have a long way to go up before we get overvalued on any
historical basis," he said.
Siegel recommends investing in China and India as fear over
China's growth has diminished and India's market has recovered.
He believes Europe remains in turmoil and is puzzled by the
euro's recent strength. The European Central Bank will have to
devalue the currency to make European exports more competitive
Friday's Market Action
The U.S. stock market was flat Friday while ending the week
near a five-year high on mixed earnings reports and
better-than-expected economic growth in China.
In afternoon trade, the SPDR S&P 500 (
) added 0.2% to 148.03.
PowerShares QQQ (
), tracking the 100 largest non-financial stocks on the Nasdaq,
fell 0.40% to 66.95.
SPDR Dow Jones Industrial Average (
) ticked up 0.07% to 135.78.
With 11% of the S&P 500 companies having reported
fourth-quarter results, corporate earnings are on track to rise
2.3% year over year, according to Thomson Reuters. Financials and
consumer discretionary stocks are enjoying the most earnings
growth, of 12% and 10.8%. Industrials are showing the worst
performance with earnings slipping 5.7%.
Foreign Market Action
IShares MSCI EAFE Index (
), tracking developed foreign markets, gave back 0.11% to
IShares MSCI Emerging Markets Index (
) picked up 0.09% to 44.72.
China reported its gross domestic product grew at a
faster-than-expected rate of 7.9% in the fourth quarter year over
year, suggesting the world's second-largest economy has most
likely avoided a hard landing. It grew at its slowest rate in
2012 since 1999.
Inflow into emerging markets stock and bond funds totaled $7.2
billion the week ended Jan. 16, for a combined year to date total
of $18 billion, EPFR reported. That's 4-1/2 times more than the
$4 billion they absorbed the first two weeks of last year.
Inflow into emerging market funds outweighed developed market
for the sixth time in the past seven weeks.
Inflow into all stock funds totaled a net $7.19 billion in the
latest week, with roughly 20% of that flow going to
dividend-paying stock funds.
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