Siegel: These forces will keep markets stable

[view original post]

One bull sees some stability in the market as West Texas Intermediate crude traded above $41 Friday morning.

Jeremy Siegel, finance professor at the Wharton School, told CNBC’s “Squawk Box” on Friday he feels much better about his bullish outlook given the recovery in oil prices.

“In January and early February there were two major negative forces on the market. One was the total collapse of oil prices down to $26,” said Siegel “The second was a very real threat of a big devaluation from China.”

“Those two deflationary forces which are very, very negative have dissipated,” he said.

Siegel said his longtime bullish outlook is now predicated on two major circumstances.

“Oil has to be above $40. We need to have the dollar not continue to rise. I think those two things happening could lead us to a good market,” he said. “If oil falls back down and the dollar continues to rise, I see no way the market could go forward.”

Joe LaVorgna, Deutsche Bank’s chief U.S. economist, isn’t as bullish as Siegel, despite the Dow wiping out its year-to-date losses on Thursday. He said the narrowness of the economy is still worrying him.

“This is basically the weakest recovery on record, led entirely by the consumer and remaining 30 percent of the economy, effectively the business and external side, is very weak. We keep growing, the bull market is not over yet, but boy we have a lot of risk,” LaVorgna explained.

While there is still risk in the market Siegel said an improvement in earnings could lift stocks while a failure to do so would cap the market at its highs of last April.

“Now we’re selling at 20 times very depressed earnings, which will bounce back if oil stabilizes in a much lower interest rate environment, and to me that is not a scary valuation. It’s not a cheap valuation, but it certainly is not a scary valuation going forward for equities,” Siegel said.

Leave a Reply

Your email address will not be published.