Prof. Jeremy Siegel – “Stocks Could end 2010, 8% to 10% Higher, From Here”

Wharton finance professor Jeremy Siegel said stocks could end the year 8% to 10% higher than they are today, in an interview with Knowledge@Wharton. He thinks the economy looks pretty good.

While the Dow's 11,000 close doesn't mean much to professional market watchers, it can give ordinary investors a psychological boost, and it focuses attention on the stock market's fine showing over the past year, said Siegel. “The U.S. economy is in a self-sustaining recovery, no longer dependent on government stimulus--and while the housing market could take years to make up recent losses, the economy should do well,” said Siegel. “With interest rates likely to rise, it's a risky time to invest in bonds, but stocks could end the year 8% to 10% higher than they are today.”

Commenting on the recession, Siegel said:

“Yes, the recession has definitely ended. What they were more uncertain about was what month it ended, but that is quibbling about history. My feeling is that it was July or August of last year. But there is no question that we are out of it. In my opinion, we are not going to have a double dip. It is just a question of whether we are going to come out of this with moderate growth or surprisingly rapid growth.”

Siegel is bearish on bonds and interest rates:

“You are going to get capital losses on them if you are stuck in a 3.5% or 4% bond and interest rates go to 5%. You are going to take a 10% or 15% loss. If you hold it to maturity, you will get it back, but you are stuck for 10, 15, 20 or 30 years in a low-yielding instrument. I do not believe bonds are an attractive investment going forward. It is precisely because I think a stronger economy will bring a rise in interest rates.”

Siegel is also pessimistic about the situation in Greece.

“Greek labor and industry are at a very severe cost disadvantage, which is going to drag down the Greek economy for years to come.”