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Fed gives 'green light' for Dow 18K: Siegel

Matthew J. Belvedere

The Federal Reserve 's reluctance to hike interest rates any time soon is a signal to investors to keep buying stocks, Wharton Professor Jeremy Siegel told CNBC on Monday.

Siegel is sticking with his prediction of 18,000 for the Dow Jones Industrial Average (Dow Jones Global Indexes: .DJI) by the end of the year, as the Dow is just 53 points away from 17,000. The Dow and the S&P 500 (INDEX:^GSPC - News) closed Friday at record highs again, while the Nasdaq Composite Index (NASDAQ:^NDX - News) climbed to levels not seen in 14 years.

Fed Chair Janet Yellen gave investors the "green light last week," Siegel said in a " Squawk Box " interview at the start of the new trading week. "That's why the so-called defensive sectors have done well, because I'm going to buy yield if there ain't going to be yield anywhere else."

Last Wednesday, the Fed hinted at a slightly faster pace of interest-rate increases starting next year, but suggested borrowing costs in the long run would be lower than expected. Policymakers reduced their bond-buying program by another $10 billion to $35 billion a month pace.

The Fed also cut its forecast for U.S. economic growth this year to a range of 2.1 percent to 2.3 percent from an earlier projection of around 2.9 percent. Forecasts for 2015 and 2016 were unchanged.

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Siegel sees the economy picking up in the second half of the year, though the final revision of first quarter gross domestic product on Wednesday is expected to be bleak.

"We're going to get that GDP later this week. It's going to show almost minus 2 percent for the first quarter," he said. The previous revision showed a 1 percent contraction.

"On the bright side, earnings actually only went down a couple percent in a real bad quarter," he added.

Projecting economic growth of 3.5 percent in the current quarter, Siegel said: "That's one reason the earnings projections are as high as they are, going forward. And if those earnings projections going forward are reached, this bull market, in my opinion, has quite a way to run."

Stocks have been moving higher despite the worsening situation in Iraq. Secretary of State John Kerry met with Iraq's embattled prime minister in Baghdad on Monday, to push for a more inclusive government there, even as Iraqi forces abandoned the border with Jordan.

"Iraq is holding back what I think would be faster gain in the market right now," Siegel said. "We're waiting to see whether there's any interruption in that 3 million barrels per day in the oil [from Iraq]."

Oil prices have been moving higher on those tensions in Iraq. In June, crude is up nearly 5 percent.

-By CNBC's Matthew J. Belvedere

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