Even though equity prices have broken through their pre-Lehman levels, Wharton School of Finance professor Jeremy Siegel still thinks there is quite a bit of bull left in the current bull market. Speaking at TD Ameritrade Institutional's annual conference in San Diego, Siegel told advisors that the S&P 500 was still 20% below its long-term trendline.

Moreover, he remarked that the S&P Mid-Cap Index, consisting of the 400 stocks below the S&P 500 when ranked by market capitalization, broke through its all-time historical high three weeks ago. However, he acknowledged that the 20% degree of undervaluation was nowhere near the 39.4% gap beneath the long-term trendline that existed at the end of 2008, which was the fifth worst in history.

"Whenever you've had a 10-year period as bad as we've had [for the last 10 years], stocks have always done well," Siegel declared. Clients, however, remain fixated on the rear view mirror. "It's not only where you are, it's where you've been," he said, admitting that two nasty bear markets with 45% plus declines in one decade understandably left many investors psychologically scarred.

He also pointed out that over the past 20 years, the real rate of return (after inflation) on the S&P 500 was 6.7%. That's identical to the multi-century, ultra-long-term rate of return that Siegel claimed to have discovered from his research dating back to the mid-19th century.

If price-to-earnings ratios on equites were to return to their historical average of 15, it would take the S&P 500 to about 1420. And if multiples went the long-term average P/E ratio in low interest rate environments of 19, it could take the S&P 500 above 1800.

In contrast to stocks, Siegel voiced a bearish outlook for bonds, particularly Treasuries. The great bubble in Treasury bonds is just about to begin, he said. Siegel added that he thought the bear marketĀ could play out over the next decade in a fashion similar to the way the stock market continually struggled in the wake of the tech bubble ten years ago.