Knowledge@Wharton

What do Wharton professors expect at the dawn of the 21st century? We queried a group of key faculty in critical fields and got answers, insights, and uncertainties aplenty.

Wharton Prophets on Profits – and a Host of Other Economic Issues

The signs are everywhere and they all point to the emergence of a truly global economy with slippery, never-before navigated slopes, entirely new rules, questions galore, and a pace that makes breakneck look sleepy.

So what do Wharton professors expect at the dawn of the 21st Century? We queried a group of key faculty on several critical areas – the stock market, banking, globalization, leadership, employment, entrepreneurship, e-commerce , retailing and marketing – and got answers , insights, and uncertainties aplenty. Their summarized comments follow.

Jeremy Siegel on the Market: Are Bears Inevitable?

Stocks are the place to be in the long run, but Jeremy Siegel is much more cautious about the next five years than the last. Siegel, Russell E. Palmer Professor of Finance and author of the well-known book Stocks for the Long Run, says not to expect the spectacular rates of return that have marked the 1990s. And what of the spate of recently published books – from Dow 36,000 to Dow 100,000 – predicting even greater run-ups in the Dow? Again, Siegel is skeptical.

“The Dow is going to hit 36,000 sometime, it’s just not going to be in the next few years,” Siegel says. “I don’t believe it will even happen in the next decade, because that would be more than a tripling of stock prices. It’s true that there has been a 10-year period in which stock prices have tripled – namely the ‘90s. But to expect that over the next 10 years we can have again these spectacular rates of return is just unrealistic.”

If the U.S. moves into a recession and global growth slows, stock returns could dwindle over the next five years. Siegel says there’s a 50 percent chance of such a slide. And while he remains optimistic about the economy’s strength and value of stocks, he believes a recession or slowdown is likely in the future. “We are already at the longest economic expansion in history. It’s true that we have controlled the business cycle enough that a slowdown would not become a major disrupting factor the way it has in the past. But I wouldn’t say it can’t happen, because lot of economic activity is built on psychology and through the centuries the human psyche has always had its ups and downs.”

Despite his view that a slowdown is inevitable, Siegel also sees unprecedented global strengths. The communications revolution, driven by the Internet and other data communications technologies, will bolster productivity and continue to give some stocks above-average returns, he believes.

Are technology stocks overpriced? To some degree, yes, he says. Siegel is particularly skeptical that Internet stocks will justify their current sky-high valuations. Still, a select group of star performers, such as Cisco and Sun Microsystems, could continue to out perform other stocks even during an economic slowdown, Siegel believes. And despite their current high prices, Siegel remains a fan of big-cap growth stocks. “I believe they still have good value. They are pricey, yes, and you’re not going to get the kinds of returns on these stocks that you’ve gotten in the last five years. Nonetheless, they can still provide leadership for you.”