Two years ago at a Florida ETF conference, Wharton finance professor Jeremy Siegel began a talk by saying he had searched for “optimistic bulls” on an online list of endangered species and couldn’t find any. Yet at that moment, the characterization was an accurate self-description.

Back in late January 2016, the Standard & Poor’s 500 was well on its way to a 13% correction, as equity markets fretted over an economic slowdown in China and a profits recession in America. Tough talk on global trade from two surging anti-establishment presidential candidates, Donald Trump and Bernie Sanders, wasn’t helping. Siegel, sometimes labeled a perma-bull, argued equities were reasonably priced.

Two years and a 45% gain in the S&P 500 since February 1, 2016, make a major difference. Sometime over those 24 months, the public finally accepted what for seven years was history’s least loved bull market. Speaking at this year’s TD Ameritrade LINC conference on this recent February 1, a bemused Siegel joked he was the most pessimistic person on CNBC in recent months.

Then he proceeded to offer advisors some serious words of sobriety. Over the next week, the Dow Jones Industrial Average and S&P 500 both proceeded to fall by more than 10%. Coincidence or not, both the 2016 and 2018 corrections occurred during earnings season when companies are not permitted to repurchase their shares. Buybacks have been a driving force throughout this nine-year bull market.

Arguably the nation’s foremost academic on equity markets, Siegel remains constructive. But like many, he believes financial markets are entering a new phase different from what investors have enjoyed for the last nine years. Advisors, he said, should expect the S&P 500 to end 2018 in positive territory with an advance of no more than 10%.

It was clear Siegel did not share the enthusiasm of some market participants over tax reform, even if he approved of it. Companies may jump on immediate expensing of capital equipment, but he thinks the front-loaded structure of tax cuts could cause some of the benefits to fade later in the year. Other skeptics also worry about the benefits from tax reform disappearing, but most see that happening several years from now.

More significantly, Siegel told advisors to expect 5% returns going forward, given the current price-to-earnings (PE) multiples and the remarkable ascent of stock prices since 2009. That 5% figure is calculated by flipping the recent PE multiple of 20 (as of February 1) into an earnings-to-price multiple, which he called a good predictor of long-term returns.

It’s a reasonable expectation, given expensive equity prices and low interest rates. Challenging a widespread view that equity markets have been propelled by central bank policies, Siegel noted that the Federal Reserve started raising interest rates in 2015 and stocks and bonds kept climbing.

Zero or negative interest rates are caused by a host of factors besides central banks, in his view. The list includes slow growth, low inflation, increased risk aversion among older investors and increased financial regulation in the post-crisis world. None of these trends are going away soon, Siegel maintained.

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