Europe and the “fiscal cliff” are two of the big depressants weighing on the equity markets, Jeremy Siegel, Wharton School professor of finance, told CNBC’s “Squawk Box” on Tuesday. Once they're resolved, the Dow can head to 15,000, Siegel said.
Siegel expects theEuropean Central Bankto stop a banking crisis, but said “I think we’re going to have a recession in Spain, Greece and Portugal for years to come, and they may have to drop out of the euro at that point.”
A euro breakup isn’t imminent though, Siegel said, adding “hopefully, a lower euro will get their exports going enough to keep them in the game.”
If the euro currency fell to $1 per euro, that would help a lot, he said. It’s half-way there, having fallen to $1.20 from $1.40, Siegel noted.
“I think Europe’s situation will clarify by next year,” Siegel said.
He also expects the fiscal cliff — when automatic tax increases and spending cuts would kick in — to be resolved by next year. “Congress might surprise us in terms of coming to more solutions in 2013 than we certainly now expect,” he said.
That should be a big stimulant for the markets and push the Dow to 15,000 next year, said Siegel.
Siegel also doesn't see a bubble in dividend-paying stocks. "Certainly they're popular now," he said. "But dividends are increasing 10 percent to 15 percent per year and firms still on average only pay out 33 percent of their earnings as dividends." (Related: Top Dividend Yielders).
"They have a lot of leeway there to move those dividends up out of even, without earnings, actually rising, he said.
And despite slow economic growth, earnings have actually been fairly resilient. “Firms are doing remarkable in this environment,” Siegel said. “I think that’s one thing that is so important for investors.” (See Also: Earnings Show Recession May Be 'Fast Approaching').
He added, “You don't need fast earnings growth given how much earnings there are.”