U.S. Stocks are ‘the Asset Class to be in’: Siegel

U.S. stocks are the asset class to be in, Jeremy Siegel, a Finance Professor at the Wharton School of the University of Pennsylvania, told CNBC.

However, this only applies to investors who can stomach volatility in the short-term, he said.

The VIX is over 40. The market expects [volatility]. Europe is not solved, said Siegel.

U.S. stocks have indeed been volatile since late July. In the past two weeks, it has plunged and surged on news of despair and hope coming out of Europe.

On Friday's relatively tame morning session, the S&P 500 Index fell 0.92 percent, the Dow Jones Industrial Average dropped 0.63 percent, and the Nasdaq Composite declined 0.88 percent.

Siegel acknowledges that the U.S. stock market could perform poorly in the next week, month, or even year.

In the next three to five years and beyond, however, he thinks U.S. stocks will do very well.

He said the U.S. interest rate is currently near-zero, which is supportive of nominal earnings growth, either in real terms or from inflation.

He said the U.S. will not likely experience a Japan Lost Decade type of long-term market downturn because the Federal Reserve has the mechanisms to prevent deflation.

U.S. stocks are also cheap.

Siegel cited the market's P/E ratio of about 11, earnings yield of about 8, and dividend yield of about 2.5.

When one compares these metrics to the 10-year Treasury yield, which stands at about 2 percent, stocks look even cheaper.

Siegel said the last time dividend yields traded above stock yields for a prolonged period of time, which was the early 1950s, stocks went on to soar for the next 20 years while Treasuries performed poorly.