Jeremy Siegel On Stocks: This Is A Correction, Not A Bear Market by Knowledge@Wharton
Jeremy Siegel on the stock market drop
Wharton finance professor Jeremy Siegel says the drop in U.S. stock markets that began last Friday is a temporary correction, largely in response to events in China and unusually large, downward revisions in U.S. corporate earnings expectations. But while the correction so far has hovered around 10%, he warns that such downward movement often generates a rebound, which is already is underway, followed by a further drop. In this Knowledge@Wharton interview, Siegel says he thinks the Dow ultimately could drop 15% from recent highs before recovering to around 19,000 by year-end. What’s happening now is a correction — not the beginning of a bear market — which would be a drop of around 20% or more, he notes.
An edited transcript follows.
Knowledge@Wharton: I want to welcome Jeremy Siegel, a finance professor here at Wharton, and we’re going to talk about the recent turmoil in markets around the world.
Just as a quick context, I want to note that U.S. stock futures are up, pointing to a positive opening today. Stocks seem to be rebounding from the big drop on Monday, when they saw the biggest drop in four years. European stocks had their worst day in seven years. I would also note that commodities are at a 16-year low, and on Tuesday in China, it was a down market day as well. The Shanghai index was down about 7%. What’s going on out there?
Jeremy Siegel: China is a major story, and the decline in China, which everyone believes is far worse than they officially have admitted to, is really putting downward pressure on commodities and on oil and I think that’s important to note. Many people said, “Yeah, but Jeremy, we’re an importer of oil. Don’t lower oil prices help the United States?” And the answer is yes, it does.… So yes, the U.S. economy is helped, but many of these oil suppliers and owners of the reserves are going to be hurt.
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