Professors at the University of Pennsylvania’s Wharton School weigh the pros and cons of leaping into the stock market rally in a recent article in Knowledge@Wharton: “In or Out? The Case for — and Against — the Stock Market.”
For equity investors, Wharton finance professor Jeremy Siegel says pulling out of the stock market is a mistake.
“‘The public unfortunately lags (behind) what’s going on in the market,’ says Siegel, noting that rank-and-file investors tend to be bullish at the top of the market and bearish when the market is about to recover. ‘It is not unusual for the public to miss the first half to two-thirds of a bull market. Then they get in at the end, and they ride it down.’
“To sophisticated market watchers, the fact that most retail investors are staying out of the market right now is actually a positive indicator, since history shows that public flows in and out of the market are usually badly timed, Siegel says. ‘I still think this bull market definitely has room to run,’ he notes. ‘I can easily see stocks up another 20% to 30% from these levels in a year or two.’”
Not all of his colleagues agree with Siegel, the article notes.
“Wharton finance professor Richard J. Herring says the market outlook remains uncertain. ‘It is hard to imagine earnings continuing to grow since they are already at an historical high relative to GDP, and the economic outlook is tepid at best,’ he notes. ‘Many experts believe this is a market pumped up by QE3 and little else.’”
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