End of Fiscal Drama Could Add 1,000 Points to Dow: Siegel
A potential global slowdown, and a pitched battle over taxes and spending in Washington, are unlikely to deter stock markets from rallying further, Wharton School finance professor Jeremy Siegel told CNBC on Monday.
The uber-bullish Siegel told CNBC’s “Squawk Box” that regardless of whether President Barack Obama or his challenger Mitt Romney prevails in next month’s general election, he expects some type of resolution on the so-called fiscal cliff that has worried investors and businesses about a mix of higher taxes and deep public spending cuts. (Read More: How Much the “Fiscal Cliff” Could Cost You.)
“The most important event won’t be on Election Day, it will be after Election Day as the ‘fiscal cliff’ gets nearer and nearer,” Siegel said. “The resolution of that one way or the other is going to be the market moving event” that could add anywhere between 500 and 1,000 points to the Dow Jones Industrial Average.
“What the market is looking for in this quarter, and what I’d like to see, is a six to nine month extension so that the next Congress can work on” a final resolution, Siegel said. He added there was “no way” legislators could hammer out a permanent solution — such as the Simpson-Bowles menu of fiscal fixes — in the near-term.
"If you resolve that uncertainty, I think you’re looking at an ‘up’ market," the academic said.
As congressional Democrats and Republicans squabble over whether to hike key taxes crucial to investment decisions, Siegel said his “worst-case scenario” was a tax rate of 23.8 percent on capital gains and dividend taxes. That would be enough to allow stocks to extend their rally, even in a sluggish economic environment, he said.
"We don’t need a lot of growth of earnings to actually have the stock market do well," Siegel added.
As the U.S. housing market stages a comeback, Siegel said the sector could add anywhere between 0.5 and 1.5 percentage points to U.S. gross domestic product in 2013.