The unparalleled surge in the stock market following the 2008 financial crisis is unlikely to persist indefinitely, and the current fervor surrounding AI stocks may culminate in disappointment, Wharton's Jeremy Siegel cautions.
As we approach the 15-year mark since the 2008 downturn, it's crucial for investors to recognize that the extraordinary growth witnessed during this period is not sustainable. The S&P 500's dramatic climb from its 2009 low of 666 to surpassing 5,000 for the first time represents an average annual growth of 16.6%, or roughly 14% when adjusted for inflation, a rate Siegel deems unlikely to continue.
Siegel highlights the speculative bubble forming around artificial intelligence stocks, with a select group of mega-cap companies driving much of the S&P 500's recent gains. Although hesitant to label the situation a bubble at current valuations, Siegel warns of the potential consequences of prolonged over-speculation in the AI sector.
The collective rush towards AI investments, while potentially sustainable in the short term, is fraught with the risk of significant corrections following any substantial earnings disappointments.
Echoing the sentiments of other financial analysts, Siegel suggests that the exorbitant valuations of the so-called Magnificent Seven may not be justified, with some predicting dramatic decreases in market value for the most overvalued stocks.
Despite these concerns, Siegel currently views the broader market as "reasonably priced," with the S&P 500's earnings multiple around 20 times, significantly lower than the multiples seen during the dot-com bubble of the 2000s. At that time, Siegel had expressed skepticism towards large-cap stocks, considering them a poor investment choice.
Nevertheless, Siegel maintains a generally optimistic outlook on the stock market, albeit with caution regarding the tech sector's inflated valuations. In recent commentary, he suggested that the S&P 500 might still see an upward trajectory of approximately 8% from its current levels, potentially reaching around 5,400 by year-end.
This perspective underscores the complexity of predicting market movements, especially in the face of burgeoning sectors like artificial intelligence, where investor enthusiasm must be balanced with prudent financial analysis.
