Wharton Professor Jeremy Siegel says he thinks fair market value of the Dow Jones Industrial Average is about 20,000, meaning that the index is close to 10% undervalued right now.
Siegel tells Bloomberg that, while a Dow valuation of 20,000 would represent an above-average price/earnings multiple by historical standards, such a valuation would be merited given the low interest rate environment. He says that would be true even as the Federal Reserve begins to raise rates. Siegel says that the beginning of rate hikes won’t mean a market peak — he says that typically, stocks continue to rise for between 9 months and 2 1/2 years after rate hikes begin. Siegel also says that he thinks some of the recent headwinds on US earnings have been one time issues, like accounting adjustments for pensions in a low interest rate environment and the plunge in oil prices.