Shares: This professor is getting optimistic now! | news

Almost all stock markets have fallen more sharply in recent months. The reason is the high inflation, which is forcing central banks to raise interest rates, even though price increases are mainly driven by energy prices. A sharp increase in supply could therefore also have led to lower gas and oil prices.

Many economies are now facing downturns and waves of layoffs.

A positive and a negative scenario

But how far can the market fall? In principle, everything is always possible on the stock exchange, even if it has never happened before.

For a fair stock valuation, the S&P 500 index should fall as low as 3,150 points. If it achieves a very favorable rating, it may also drop to 1,972 points. It is currently at 3,735 points, so even lower prices are possible (14/06/2022).

How deep the market actually sinks in the end also depends on when energy prices and thus inflation start to fall. If this is the case, central banks should not raise interest rates further. If a recession shows up in the data and unemployment figures rise, stock markets may already start to rise.

Jeremy Siegel becomes bullish on stocks

Wharton Professor, author and investor Prof. Dr. Jeremy Siegel is already becoming optimistic. He assumes that the stock market has already priced in a mild recession. The S&P 500 index has fallen more than 22% from its highest level. Since the 1930s, it has fallen by an average of 32% during a recession. The technology exchange Nasdaq Composite has already fallen more than 32% (14/06/2022).

Jeremy Siegel therefore already sees an attractive buying level for some stocks.

“Right now, the S&P 500 index is trading at a 2022 price-to-earnings (P / E) ratio of around 17. Excluding tech stocks, it is down to 13,” Jeremy Siegel told CNBC.

The long-term average for this index is 15.97. But profits are very volatile, so the P / E ratio is often of little importance. Meanwhile, the price-to-book ratio of the S&P 500 index is still 3.71 at the moment, while the median is 2.94.

Jeremy Siegel also argues that even if central banks raise interest rates, they are likely to remain at historically low levels. As a result, higher valuations are justified in the stock market. Therefore, the bond market is still today rated significantly higher than the stock market.

Shares remain invincible

“Even if the Fed’s interest rate is 3 or 3.5%, is it so real competition for the real asset that is stocks?” asks Jeremy Siegel.

And even if interest rates rise again in the account, it will probably be significantly worse than inflation. Equities, on the other hand, in many cases provide a dividend that rises with falling prices, and in addition an average return of around 6.6% in the long term.

“History shows that dividends rise with inflation, so you still get a real return,” Professor Siegel said.

Article Shares: This Professor Is Now Becoming Optimistic! first appeared on The Motley Fool Germany.

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