Jeremy Siegel, a professor of finance at the Wharton School, said Thursday he expects the stock market adjustment to persist at least throughout the year. However, he told CNBC that investors would have to be wary when the Federal Reserve adjusted its extremely relaxed monetary policy.
“It’s not a time for the Fed to convince so hard, you worry, I mean, we can make the market go up 30% or 40% before it’s 20%,” after the Fed’s shift, Siegel said in “Halftime.”; Report “We are not in the 9th opportunity here, we are in the third opportunity of growth.”
Siegel said he expects to see a fast-growing economy this year as economic constraints in the last COVID Era are lifted and vaccinations allow for travel and other activities again. Release inflation pressures, he said.
“I think interest rates and inflation will rise higher than the Fed anticipated. We are going to have a strong inflation year, I think 4% to 5%,” said the long-known bull market.
Economic conditions like that would force the central bank to act faster than currently projected, Siegel argued, “but between now let’s enjoy this car, it will go on and on … until the end of the year.”
U.S. stocks rallied higher midday Thursday, with the Nasdaq about 1 percent ahead of its real sales. The heavy tech index fell on Wednesday. But it remains about 2.9 percent from a record high as of February, the S&P 500 rose to a record high on Wednesday. The Dow Jones Industrial Average is higher. But still below Monday’s record close.
The yield on the 10-year bond, which remained below 1.7 percent on Thursday, was relatively flat recently, in a sharp jump in market interest rates in 2021, including a 14-month high in the period. The end of March gave several growth stocks to tech names as rising borrowing costs reduced the value of future profits and squeezed valuations.
Bond markets have been at odds with the Fed this year as traders push back on the belief that stronger economic growth and inflation will force central bankers to raise short-term rates near zero and cut back on. Buying a lot of assets faster than expected
At its meeting in March, the Fed raised expectations for rapid growth. But it points to the possibility of no rate hike in 2023, despite the improving trend and a shift to inflation this year.
On Thursday, Fed Chair Jerome Powell reiterated the central bank’s policy stance, speaking at the International Monetary Fund’s seminar that the asset purchases were “ not the case. ” “It will continue today until we make significant progress towards our goals.”
“We are not looking at predictions for this purpose, we are looking at real progress towards our goals, so we will be able to measure them,” Powell said at a moderated work by CNBC’s Sara Eisen.
So far, Powell added that the economic recovery “Irregular and incomplete,” with low-income US residents being employed less often.
In response to Powell’s IMF speech, Siegel said: “I have never heard of a Fed chair.”
Why stocks are still attractive
One of the key reasons stocks can continue to rise despite rising inflation is because equity ownership is still better than bonds or cash holdings, Siegel said.
“People will turn around and say ‘OK, there is more inflation and 10 years more. What am I going to take my money for? That means I want to get out of the stock market when. [corporations] Is there more pricing power than it had in two decades or more? Siegel said, “No, not yet.”
At some point, Siegel said the calculus for investors would change.
“Ultimately, the Fed has to step in and say ‘ ‘Wow, we have a little bit too much inflation.’ That’s the time to be cautious, ”Siegel said.“ Right now I’m not really careful, I still think the bull market is in 2021. ”