Jeremy Siegel: I was too bullish—and here's why

Longtime stock bull Jeremy Siegel said Monday he expects short-term volatility to linger until oil prices and China's currency stabilize.

"There is a double threat of deflation, which is very scary for the market," Siegel told CNBC's "Squawk Box." He pointed to depressed commodities and concerns about how a possible China devaluation of the yuan might impact other economies in Asia. "Can these central banks counteract all these deflationary forces? That's clearly … spooking the markets right now."

Stocks have been steadily marching lower in February, snowballing what was the worst January for the market since 2009. Equities have been tied to falling oil prices, with the Dow Jones industrial average, the S&P 500, and the Nasdaq composite solidly in correction territory.

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"I was far too bullish last December," Siegel admitted, referring to his call on "Squawk Box" that "valuations can stay on the high side." He also had predicted on CNBC in November that Dow 20,000 was a "real possibility" in 2016. It was above 15,900 on Monday.

The Wharton School finance professor on Monday summed up his view on the headwinds to the market. "Those deflationary forces ... from China, from commodities are really, in the presence of debt that so many of these energy and other companies have, ... causing the market turmoil right now."

As for the Federal Reserve, market expectations have all but ruled out a March interest rate increase. When policymakers moved rates higher for the first time in more than nine years in December, the Fed had projected four more hikes in 2016. The new year market turmoil has put doubt on whether central bankers will be able to move that aggressively. Investors will be looking for clues in Fed Chair Janet Yellen's congressional testimony about the economy on Wednesday and Thursday.

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"The Fed is not meeting its target [on inflation]," Siegel said. The Fed wants to see inflation increase to 2 percent. "I don't see any inflationary forces out there that are worrisome," he added. In the absence of price pressures, there's less of an incentive for policymakers to hike rates.

Against that backdrop, Siegel said, "in the long-run, you're going to be rewarded [in stocks]," because price-to-earnings ratios are "extremely reasonable" on a historical basis and rates don't look like they're going higher. But he warned of near-term swings.

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