Stocks are headed for a year-end rally as bond yields near their peak and valuations look 'persuasive,' Wharton professor Jeremy Siegel says

• Stocks will see a year-end rally, continuing November's historical trend as a strong month for the market.
• Jeremy Siegel says bond yields are near their peak and the end of a historic sell-off is in sight.

The sell-off in stocks in the past few months has investors fretting over their 2023 gains, but if history is any guide, investors are about to enter a historically strong month that could help propel equities to a year-end rally.

That's according to Wharton professor Jeremy Siegel, who says strong seasonality and a handful of key developments will set stocks up for gains as 2023 winds down.

"In the last 25 years, November is the second-best month of the year, just slightly behind April," he told CNBC on Monday. "So I do think we're going to have a year-end rally coming up."

"I think valuation is persuasive," he added. "I actually think growth is going to be better next year, and I think that the higher real interests we've seen is optimism about growth in 2024. And that's going to pressure the stock market because it has to discount those higher earnings, but I think those higher earnings are going to come through."

The central bank convenes this week and will deliver its next decision on interest rates on Wednesday, but Siegel said the meeting is unlikely to give any new information to investors. The Fed has hiked rates 11 times since March 2022, and paused twice, including at the last meeting in September.

"The Fed is certainly not going to do anything on Wednesday and they're going to leave the door open," he said.

Much of the downward move in stocks was spurred by Fed chair Jerome Powell's insistence that rates are going to remain elevated for longer than markets were expecting. Treasury yields shot higher in response, with investors shedding the bonds and delivering a historic crash to rival some of the biggest in history.

But now, Siegel says, yields are approaching their peak.

"I think we're pretty near the top of the 10-year, maybe five and a quarter," he said, referring to a potential ceiling on the 10-year Treasury of 5.25%. That's nowhere near where yields were in the 1980s, he noted, adding, "that's the only time we ever saw something like single-digit [price-to-earnings] ratios."

The S&P 500 is up 7.7% year-to-date, and up about 16% since its low in October 2022. While valuations of the so-called "Magnificent Seven," look high, Siegel noted that valuations are at historic lows in the rest of the market.