The tech momentum trade driving market gains is likely to continue, says WisdomTree’s Jeremy Siegel.
“Often times it gets overdone at the end, but the end is often further into the future than many people believe,” he said.
Siegel forecasts stocks will outperform bonds over three to five years, delivering real returns of about 5%.
The tech momentum trade that has powered the stock market higher over the past year-and-a-half is likely to continue on for a lot longer than most expect, according to WisdomTree economist Jeremy Siegel.
Siegel told CNBC on Thursday that gains seen in AI stocks like Nvidia, Broadcom, and others are showing no sign of slowing down.
“I think that momentum trade on the tech and AI-related is still there. That has been so powerful. It takes a lot of bad news to break a momentum trade and we just haven’t gotten it,” Siegel said.
While the S&P 500 is up about 14% year-to-date, the tech-heavy Nasdaq 100 is 17% and Nvidia, which is responsible for 35% of the S&P 500’s year-to-date return, is up a whopping 162%.
“Let’s face it, those stocks have delivered the bacon as they say, and as long as they do, those momentum traders are going to crowd into those stocks, so I don’t see that ending anytime soon,” Siegel said.
“Of course, often times it gets over done at the end, but the end is often further into the future than many people believe.”
In a recent interview with Carson Group’s Facts vs. Feelings podcast, Siegel highlighted a personal anecdote as to why it’s so hard to call the top in a stock market bubble.
“I had a very good colleague at Wharton… he started shorting internet stocks in 1999. They were way overvalued then. But he got margin calls and eventually had to cover his shorts at the top,” Siegel said. “So it’s really hard to bet on a bubble.”
But Siegel doesn’t believe today’s stock market is in a bubble because, unlike in the late 1990s, earnings are actually backing up today’s record-high stock prices.
“I don’t think the current AI is a bubble. Look at Nvidia, it’s a real solid company, It’s selling for 35-40 [times earnings]. We had those other companies I mentioned were selling at 200 – 300 [times earnings]. Big difference,” Siegel said.
Siegel still believes that over the next three to five years, after accounting for inflation, stocks will outperform bonds and deliver considerable real returns.
“My forecast for three to five years on the entire stock market is 5% after inflation rate of returns. That’s after inflation. I think it’s going to be a little bit more,” Siegel said.
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