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

Long-term investors

Long-term investors “absolutely buy now,” says Jeremy Siegel

With the Dow, S&P 500 and Nasdaq in deep red so far in the year, it can be tempting to hit the sell button and get out of this bad market altogether.

But a leading economist suggests otherwise.

“If you are a long-term investor, I would definitely buy now,” Jeremy Siegel, a finance professor at the Wharton School of Business, told CNBC. “I think they are absolutely fantastic long-term values.”

This is why the professor is so optimistic.

do not lose

The Fed should look ahead

Inflation is also one of the reasons for the stock market decline this year. Consumer prices were rising at the fastest pace of the past 40 years. Although the main CPI figure has cooled slightly recently (the August inflation rate was 8.3% yoy), it is still worrying.

To control inflation, the Fed aggressively raises interest rates. The central bank last month raised benchmark interest rates by 75 basis points, the third consecutive hike of its kind.

If high inflation continues, higher rate hikes may be on the way. And this is not a good sign for stocks.

Siegel points to a cooling section of inflation: housing. But this is not correctly reflected in the index number.

“We pointed out that due to the way these indices are constructed, housing costs are very low and will continue to rise, even if we look at the Case-Shiller Housing Index and the National Housing Index, house prices. ,” he says.

Siegel suggests that instead of making decisions based on hindsight, the Fed should “look ahead”.

“They have to see what’s happening in the market, in the real estate market, in the rental market, in the commodity market.”

‘Great value’

The stock decline was painful, but here’s why it could be an opportunity,

Siegel explains that this is due to the fact that the decline in stocks lowered their valuations.

“When you talk about 16x gains, and even if it’s bearish, and you shouldn’t just base it on bearish gains, you should base it on long-term gains, which in my opinion, look very friendly … I think those are absolutely excellent values”, he claims.

Of course, having an attractive valuation does not mean that stocks don’t drop further.

“Could it go lower? Obviously in the short term. In bear markets, it fell further, “admits Siegel,” 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 equity returns could be stable over the next decade.

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

Siegel remains optimistic.

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

“We have added 40% to the money supply since the start of the pandemic in March 2020. Historically, income has only increased with inflation and the money supply. So the stock should be 40% higher than theirs.

Economists point out that at one point, stocks were 50-55% above pre-pandemic levels. But with the recent volatility, that’s only 20% higher. And that means investors have something in store for the next decade.

“Say that in 10 years we will have the same Dow when the earnings returns that I see in the market show that your returns after inflation will be around 6% per year. . “

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This article provides information only and should not be taken as advice. It is provided without warranties of any kind.

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