- Wharton's finance professorJeremy Siegel expects tax reform will boost the Dow to 25,000 and corporate earnings by 8 percent.
- Political uncertainty and inflation fears could increase stock market volatility in 2018, Siegel says.
The Wharton School's Jeremy Siegel isn't putting on a bear suit anytime soon.
The finance professor who just correctly predicted Dow 24,000 sees another milestone approaching.
"As we get to these thousands, of course, each is a smaller increment. I think right now, we're only three percent from 25 – the next thousand on the Dow," Siegel said Friday on CNBC's "Trading Nation."
Siegel has had a solid track record over the past 12 months. He led the rally cry for Dow 20,000 late last year.
He expects the next leg higher to Dow 25,000 will to come from the tax reform package. It could provide the momentum the Dow needs to hit that number in a matter of weeks, if not days, according to Siegel.
His comments came as the Senate narrowly passed a $1.4 trillion tax bill. On Saturday morning, Senate Republicans voted to overhaul the American tax system with a 51-49 vote, the passage of which included a whopping corporate tax cut that lowers the current rate from 35 percent to 20 percent.
"The corporate tax cut is particularly what I think the market wants," Siegel told CNBC. That could boost earnings by 8 percent or so, and that's a positive for stocks."
Even though Siegel expects stocks to rise another three percent in the near term, he predicts the returns will slow in 2018 to about 5 to 10 percent.
"It's my expectation next year is not going to be anywhere as easy as this year in the markets," he said. "We're moving up to full valuation. It doesn't mean that means there's going to be a break in the market, a bear market or anything like that. But what are you up -- 15 to 20 percent or more this year? That'll be harder to come by in the future."
He points out headwinds stemming from inflation and political uncertainty could create downward pressure and add volatility to the stock market in 2018, which has been largely absent this year.
Another wild card is the Federal Reserve's monetary policy, Siegel suggested.
"Is the Fed going to be much more aggressive as that unemployment rate keeps on going down? Will they have to tighten? And that will definitely put a pause," Siegel said. "How will the Republicans do in the midterm elections? Will they hold the Senate? Will they hold the House? That's why it's more urgent go get what you think is right done now."