Markets

Jeremy Siegel: The S&P 500 will see at least a '10% pop' on US-China trade settlement

Key Points
  • The S&P 500 will get a double-digit lift from a "settlement" in the U.S.-China trade war, Jeremy Siegel says.
  • "Otherwise, we're just going to be muddling along, because valuations are pretty full at this particular juncture," the Wharton School professor tells CNBC.
  • "If Trump can deliver on a trade deal, I think you'll have a global bull market," he says.
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Jeremy Siegel: The S&P 500 will see a '10% pop' on US-China trade settlement

The S&P 500 will get a double-digit percent lift from a "settlement" in the U.S.-China trade war, Wharton School professor Jeremy Siegel told CNBC on Tuesday.

"If we get some sort of settlement, I think we get a 10% pop, at least, in the S&P," the longtime stock bull said on "Closing Bell." "Otherwise, we're just going to be muddling along, because valuations are pretty full at this particular juncture, until we get some push on earnings."

The S&P 500 rose 0.2% to 3,091.84 on Tuesday, touching a new intraday record. The Nasdaq Composite inched to a record high, while the Dow Jones Industrial Average closed at precisely the same level it opened, 27,691.49.

The stock market's record run recently has been fueled, in part, by an improving outlook toward a resolution in the long-running trade dispute between the world's two largest economies. The S&P, for example, is up 4.09% over the last month.

In October, President Donald Trump announced a "phase one" deal with China, which has yet to be officially signed.

At the moment, Siegel said, the most important factor for the stock market is the trade war, not any potential action from the Federal Reserve. The central bank has thrice cut interest rates this year, most recently on Oct. 30.

"I think the Fed has been taken out of the equation," Siegel said, noting recession fears also have started to subside.

Siegel said in September another 25 basis-point interest rate cut was necessary to stave off a recession. That cut was made in October.

Despite Trump's pleas Tuesday for further rate cuts at the Economic Club of New York, Siegel said interest rates have "gotten to where they're going to be."

"The traders are looking for a trade deal," Siegel said.

The absence of a significant resolution to the trade dispute — which has weighed on global growth — would be a "disappointment," Siegel said.

And at present valuations, with stocks selling at about 19 times this year's S&P operating earnings, the market has little wiggle room for a major let-down, the professor argued.

"It isn't cheap. Now, it's not expensive for the interest rate level that we're at. But it doesn't give a lot of room for some big disappointment," he said. "An escalation of any trade tensions would really bring a sell-off."

On the other hand, Siegel said, "If Trump can deliver on a trade deal, I think you'll have a global bull market."

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Nasdaq closes at record high