He’s out of his mind.
“I think fair market value does give us another 5%, 6% this year, but we may go up 10, 12% before we sell-off a bit,” says @Wharton Professor Jeremy Siegel.
Plus: the one thing in the market that’s worrying him 👇 pic.twitter.com/z8acFylW6R
— CNBC Halftime Report (@HalftimeReport) July 12, 2019
How to Determine Fair Value
Fair value in the stock market can be determined in many different ways. One of the more accurate ways to judge stock market valuation is to use the Shiller P/E ratio. This is a price-to-earnings ratio based on the average inflation-adjusted earnings from the previous 10 years.
It’s a more accurate view of the stock market because it translates earnings from 10 years ago into present-day dollar value and also smooths out the data by using a 10-year average.
As we can see from the Schiller P/E ratio chart below, the stock market is now at its second most expensive in history. A P/E ratio of 30.73 is almost twice what the long-term average has been.
A 50 Percent Stock Market Crash Is Coming
Everything reverts to the mean at some point. The only question is when that is going to happen. Consequently, according to this valuation method, the market needs to crash by 50 percent to return to the long-term average.
Jeremy Siegel believes the market may go up another 10 percent or 15 percent before selling off by about 10 percent.