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The technology momentum driving market gains is likely to continue, says WisdomTree’s Jeremy Siegel.
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“Often it gets exaggerated at the end, but the end is often further in the future than many people think,” he said.
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Siegel predicts that stocks will outperform bonds over three to five years, with a real return of about 5%.
According to WisdomTree economist Jeremy Siegel, the technology momentum trade that has driven the stock market higher over the past year and a half is likely to continue for much longer than most expect.
Siegel told CNBC on Thursday that gains in AI stocks like Nvidia, Broadcom and others show no signs of slowing.
“I think the momentum trade in technology and AI still exists. That’s been so powerful. It takes a lot of bad news to break a momentum trade, but we just haven’t gotten it,” Siegel said.
While the S&P 500 is up about 14% this year, the tech-heavy Nasdaq 100 is up 17% and Nvidia, which is responsible for 35% of the S&P 500’s returns this year, is up a whopping 162%. .
“Let’s face it, those stocks have made the most of it, as they say, and as long as they do that, those momentum traders are going to crowd into those stocks, so I don’t see that ending anytime soon,” Siegel said.
“Of course it’s often over at the end, but the end is often further in the future than many people think.”
In a recent interview with the Facts vs. Carson Group’s Feelings podcast, Siegel highlighted a personal anecdote about why it’s so hard to call the top in a stock market bubble.
“I had a very good colleague at Wharton…he started shorting Internet stocks in 1999. They were way overvalued at the time. But he started getting margin calls and ended up having to cover his shorts at the top,” Siegel said. “So it’s very difficult to bet on a bubble.”
But Siegel doesn’t believe today’s stock market is in a bubble because, unlike the late 1990s, profits are actually supporting today’s record high stock prices.
“I don’t think today’s AI is a bubble. Look at Nvidia, it’s a really solid company, it sells for $35-40.” [times earnings]. We had these other companies I mentioned that were selling for 200-300 [times earnings]. Big difference,” says Siegel.
Siegel still believes that after accounting for inflation, stocks will outperform bonds over the next three to five years and deliver significant real returns.
“My three-to-five year forecast for the entire stock market is 5% after inflation. That’s after inflation. I think it will be a little bit more,” Siegel said.
Read the original article on Business Insider
