Markets guru Jeremy Siegel predicts stocks will keep surging this year - and warns house prices could plunge 20% from their peak
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- Wharton professor Jeremy Siegel expects stocks to surge and house prices to tumble.
- The S&P 500 could notch a 20% gain this year, and home prices may fall 20% from their peak, he said.
- Siegel noted there was much more speculation during the dot-com bubble than the current tech rally.
Stocks will soar and house prices will slump in the months ahead, Jeremy Siegel predicted in an interview with Insider this week.
The retired Wharton finance professor and author of "Stocks for the Long Run" said in late December that the S&P 500 could gain 15% to 20% by the end of 2023, or even during the first half of the year. The benchmark US stock index has already climbed 8% since the start of January.
"Everyone thought I was crazy," Siegel laughed. His strikingly bullish prediction puts the S&P 500 as high as 4,600 points by the end of this year, up from about 4,100 points today.
The veteran market watcher felt confident with his call because investors and analysts were almost universally predicting further pain for stocks this year. "When everyone says that, you know they're wrong," he said.
Siegel noted the massive amount of fiscal and monetary stimulus during the COVID-19 pandemic inflated a bubble in technology stocks. But he dismissed parallels between the latest tech boom and their ultimately disastrous surge in the early 2000s.
"The dot-com bubble was a much bigger bubble," he said. "Even with the speculation that we saw in Zoom, Peloton, it didn't compare with the speculation that we saw back then. It drove price-to-earnings ratios far higher than we ever saw in 2021."
Siegel also weighed in on US house prices, which surged by about 45% during the first two years of the pandemic, but have retreated by roughly 3% since then. He predicted they would decline by 10% from their peak, or as much as 15% if the Federal Reserve doesn't relax its grip on the economy.
"I think they're going down," he said. "I think they're going to continue to sink, but they're not going to wipe out the gains."
In response to inflation surging last year, the Fed has hiked interest rates from nearly zero to almost 5% within the past year. Higher rates can relieve upward pressure on prices by encouraging saving over spending and investing, and by lifting the cost of mortgages and other forms of debt. However, they can also weigh on asset prices and economic growth.
Siegel told Insider that US inflation has now slowed sharply, and he expects the Fed to realize that and begin cutting rates later this year, or it risks an unnecessary recession. He predicts stocks will rally further once the Fed reverses course, but house prices will be hit by higher rates and recession fears, especially after two years of exceptional gains.
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