Corporate profits and stock volatility suggest the equities market has potential for notable gains from this point, according to WisdomTree and Wharton School economist Jeremy Siegel.
Siegel also suggests the Federal Reserve's neutral interest rate — the rate in line with full employment and stable inflation — could be higher than anticipated, which would put 10-year Treasury bond yields on track toward 4.75%.
"On the equity front, corporate earnings are strong and with the VIX (the CBOE's volatility index) still elevated around 20, this is not the backdrop for the start of a bear market," the economist wrote in his weekly commentary Monday.
Investors remain cautious, "with many hedging against potential geopolitical shocks or election uncertainties. The current under-loved bull market could see significant upside. While I'm not predicting a 'melt-up,' it is important to acknowledge the market's upward momentum could continue as fundamentals remain supportive," Siegel wrote.
The battle between growth and value stocks continues to oscillate without showing a definitive trend yet, he added. "Small-cap stocks, in particular, face a mixed outlook as higher-for-longer financing costs weigh against a better environment for earnings."
