The Long-Term Future

The stock market has spent most of 2010 moving more or less sideways, but where is it headed over the next five years? If you believe Jeremy Siegel, the author of the 1994 classic Stocks for the Long Run, things look pretty good. The New York Times checked in with him over the weekend, and found him still fairly optimistic.

The key, according to Siegel, is the price-to-earnings ratio. The P/E ratio of the S&P 500 currently stands at around 13, while the historical average since World War II is 15.2. If the P/E ratio meets is historical rate, that should lift stock prices a little. The upshot is that Siegel calculates there is a 96.6 percent chance of stocks going up over the next five years. Over the longer term, in the next ten or twenty years, Siegel thinks that the chance of the stock market's value increasing is 100 percent.

No one knows with any certainty, of course, where the market is headed, but Siegel is a very smart man with decades of experience following every move of the equity markets. If he's this confident about the long-term direction in which they're headed, we can all feel better about what lies ahead.