Jeremy Siegel sees a more dovish Fed, discounts market bubbles

In stark contrast to the relative mood of the stock market since the start of the year, Jeremy Siegel is embracing his bullish reputation by suggesting that fears of market bubbles are usually exaggerated and incorrect. “'Bubble' is one of the most over-used terms over the last five years,” the Wharton School professor of finance said Tuesday morning in Hollywood, Fla., at the Inside ETF conference. “A bubble should only be used to describe an asset that is out of line with fundamentals, and right now we are not, and have not been over the last six years, out of line with fundamentals,” he said, citing the example of the Nasdaq Composite Index sporting a price-to-earnings ratio of 600 in March 2000. “That was a real bubble, but there's no reason we should apply the term bubble now.” Mr. Siegel encouraged the audience, made up largely of financial advisers, to stop worrying about what the Federal Reserve might do next, and stop giving the Fed so much credit for moving markets. “One of the greatest myths on Wall Street is that the Fed is responsible for keeping interest rates low,” he said. “No, rates are low for fundamental economic reasons.” SEPTEMBER FED HIKE Even though the Fed has indicated it plans to hike interest rates eight times over the next two years, Mr. Siegel said that won't happen. “Ever since 2008, the Fed has been predicting three or four rate hikes, but they never did it, and the markets know they won't do it this time,” he said. “The Fed is slowly waking up to the new neutral.” Despite the Fed's rhetoric following its quarter-point rate hike last month, Mr. Siegel said he is not expecting the Fed to raise announce another rate hike until September at the earliest. “I would say, maybe September, if the market is healthy and they get some stability in the oil markets,” he said. “I think the Fed is basically going to be on hold going forward.” The sooner the market realizes that, the better. “When people don't see the yield in fixed income going anywhere near where they expected it to be, I think they'll be turning to stocks,” he said.