Renowned economist Jeremy Siegel predicts that the ongoing surge in stock markets could extend significantly, even as the Federal Reserve battles against economic expansion.
Siegel highlights the robust performance of stocks, particularly in the first half of 2023, with remarkable growth observed in mega-cap tech companies driven by the excitement surrounding artificial intelligence (AI) and the anticipation of the Fed’s potential interest rate reduction.
These factors have propelled the S&P 500 index to a 16% increase during the initial six months of the year, surpassing Siegel’s initial projection of a 15% rise by the end of 2023.
Siegel, during an interview with CNBC on Monday, expressed confidence in the market’s ability to sustain its momentum, stating, “It can continue a lot longer… the momentum is still there.”
He further mentioned that disappointing economic data or a decline in corporate earnings would likely be required to derail the current rally.
In the event that the upward trend in stocks faces disruption, Siegel suggests that the rally could persist due to the eagerness of investors to participate in the next bull market following the lackluster performance of 2022.
However, Siegel acknowledges that risks lie ahead for the market, particularly as the Federal Reserve faces the possibility of overtightening the economy through ultra-restrictive monetary policies.
Over the past year, Siegel has been a vocal critic of the Fed, as central bankers aggressively raised interest rates by 1,700% to combat inflation.
He argues that such actions could potentially push the economy into another recession, although inflation indicators reviewed during the Fed’s recent policy meeting have remained in line with or below expectations.
Fed officials have indicated the likelihood of elevated rates throughout the year, with market expectations currently suggesting an 86% probability of a 25-basis-point rate hike at the upcoming policy meeting, according to the CME FedWatch tool.
Siegel characterizes the Fed’s approach as a “war on growth,” implying that stocks may face downside risks in the second half of the year. Nevertheless, he believes the rally could continue in the short term.
As a finance professor at Wharton, Siegel has revised his views on the economy and markets multiple times over the past year.
In January, he predicted the advent of a new bull market, but later cautioned about a potential decline in the stock rally by June.
Siegel’s concerns stem from his belief that the United States might experience a mild recession, which he anticipates could impact the economy within the next few months.