“Enjoy the ride” – Wharton’s Jeremy Siegel said the stock market could rise 30% before the boom ends
Wharton School finance professor Jeremy Siegel said Thursday that he expected the rally in stock markets to continue at least this year. However, he told CNBC that once the Federal Reserve adjusts its highly accommodative monetary policy, investors need to be cautious.
“Only when the Fed leans really hard do you have to worry. I mean, we could get the market up 30% or 40% before it goes down 20%,” after the Fed changed, Siegel said “Mid-term report”. We’re not in the ninth inning. We’re more like the third inning of the boom. “
Siegel said he anticipates a rapid economy this year as the last economic restraints of the Covid era are lifted and vaccinations allow travel and other activities to increase again. However, this is likely to trigger inflationary pressures, he said.
“I think interest rates and inflation will go well beyond what the Fed has forecast. We will have a strong inflation year. I think 4% to 5%,” said the long-time bull.
Such economic conditions will force the central bank to act earlier than it currently expects, Siegel said. “But in the meantime, enjoy this ride. It will continue … towards the end of the year.”
US stocks were higher around Thursday noon, with the Nasdaq being the real highlight with a gain of around 1%. The tech-heavy index fell on Wednesday but remained about 2.9% off its record high in February. The S&P 500 contributed to Wednesday’s record high. The Dow Jones Industrial Average was higher but still below Monday’s record close.
The 10-year government bond yield, which was still below 1.7% on Thursday, has been pretty stable lately. The rapid rise in market rates in 2021, including a 14-month high in late March, threw growth stocks, including many technical names, on their knees as higher borrowing costs eroded the value of future earnings and depressed valuations.
The bond market has been at odds with the Fed this year as traders drive yields higher as they believe stronger economic growth and inflation will force central bankers to hike near-zero short-term rates and make massive purchases of Reduce assets earlier than forecast.
At its March meeting, the Fed raised its growth expectations sharply, but indicated the likelihood of a rate hike by 2023 despite an improving outlook and a turn to higher inflation this year.
Fed chairman Jerome Powell reiterated the central bank’s political stance Thursday and said at an International Monetary Fund seminar that asset purchases “would continue at the current pace until we make substantial progress towards our goals.”
“We don’t look at projections for this purpose. We look at actual progress toward our goals so we can measure this,” Powell said at the event hosted by CNBC’s Sara Eisen.
So far, Powell said the economic recovery has been “uneven and incomplete,” and lower-income US citizens have seen less job growth.
In response to Powell’s comments on the IMF, Siegel said, “I’ve never heard a Fed chairman so reluctant.”
Why stocks are still attractive
One of the main reasons stocks can still go up despite a spike in inflation is that owning stocks would still be better than bonds or holding cash, Siegel said.
“People will turn around and say, ‘OK, so there’s more inflation and the 10-year maturity is increasing? What do I do with my money? Does that mean I don’t want to be in the stock market when.” [corporations] Do you have more pricing power than in two decades or more? “” Siegel said: “No, not yet.”
At some point Siegel said the calculation for investors would change.
“At some point the Fed just has to step in and say, ‘Wow. We just have a little too much inflation.’ This is the time to be careful, “said Siegel. “I wouldn’t be really careful right now. I still think the bull market is up for 2021.”