After a 7.4% rally in the last 8 trading days of August brought the Dow back into the black for the year, the index is starting September with a thud.
Following a 120-point decline Thursday, the Dow was down more-than 200 points in recent trading Friday following a dismal jobs report, revived worries about Europe and renewed concern about banks, here and abroad.
But there's not much that worries Wharton professor and WisdomTree Investments senior advisor Jeremy Siegel.
"I like stocks very much," Siegel says in the accompanying video. "Stocks are 25% to 30% below what I'd call 'fair market value' and that might be conservative in terms of earnings power and relative interest rates."
Sticking by the theme of his investing classic Stocks for the Long Run, Siegel says stocks are cheap today based on the expected earnings power of the S&P and relative to Treasury yields, which were falling sharply again early Friday.
"Even if we have a recession, I think this is a cheap market and I don't think we're going to have one," he says. "My feeling, we're not going to have a recession so these are not unusually, tenuously, frightening earnings [projections]." (See: Recession Ahead? Nouriel Roubini Sees 60% Chance, But Jeremy Siegel Puts Odds at Just 25%)
Siegel also disputes the argument stocks are expensive based on cyclically adjusted P/Es, noting his friend and former classmate Robert Shiller's famed metric takes a 10-year average of corporate earnings. "We had a huge hole in 2009. Unprecedented," Siegel says, noting just Bank of America, Citigroup and AIG accounted for $100 billion losses. "[Shiller] averages in a zero and doesn't weight it; I think that's backward looking."
Sympathy for the Bond King
At the same time, Siegel remains extremely bearish on Treasuries and, while expressing some sympathy for Pimco's Bill Gross, says the so-called Bond King should be doubling down on his bearish bet, not abandoning it. "I think what Bill should say is 'I may have been wrong before but this is the time. Now, this is the time to get out of Treasuries,'" Siegel says. (See: Bill Gross Learns a Hard Lesson: Even the 'Bond King' Makes Mistakes)
As you'll see in the accompanying video, the professor struggles to think of what would cause him to rethink his bullish stance, short of a "major international event" or sudden surge in oil prices.
"There's always some event you could think that could wallop the stock market," he says. "But you have to ask yourself: 'Is that something in our likely event scenario?'"
For Siegel, the answer is "no," as is almost always the case.