Siegel: Recovery Now Self-Sustaining, Stocks Have Plenty of Upside Left

Wharton professor and Stocks for the Long Run author Jeremy Siegel says the recession is definitely over and the economy has entered a self-sustaining expansion that isn’t reliant on stimulus dollars. And, he says stocks could gain another 8% to 10% by year-end.

“What we have seen over the last three months are the first signs of a self-sustaining recovery,” Siegel says in an interview with Knowledge@Wharton. “The economy is beginning to repair itself on its own. We could argue about how quickly it is repairing itself on its own and how quickly it needs to repair itself to bring down the unemployment rate, but right now I believe — and many colleagues and fellow forecasters I follow on Wall Street and otherwise, even some who had been skeptical believe — that we have seen a self-sustaining expansion.”

Siegel also talks about why he thinks bonds aren’t an attractive investment right now, and why he thinks stocks have more room to run. “They have farther to go,” he says of stocks. “Right now, stocks are selling at around 15-and-a-half times projected 2010 operating earnings. Many people say, ‘Isn’t that about the average?’ The answer is yes. But coming out of a recession, that is actually a very low valuation. I did a study about the average price-earnings ratio of the market for the next full year out of a recession and it turns out to be 18 and a half. We are about 15% or 20% discounted from the average price of stocks coming out of a recession. That’s why I still think there is room for stocks to run up.”

Siegel also reiterates his belief that stocks are the best bet for the long term, and says those who’ve missed the rally so far shouldn’t think it’s too late to buy stocks. “People worry. They say, ‘I’ve missed it. It is up 80% from a year ago,'” he says. “I’m saying,  ‘No, you’ve still got upside. Don’t feel you’ve missed it all.'”

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