Wharton School of Finance professor Jeremy Siegel said Thursday that he expects the stock market rally to continue for at least a year. However, he told CNBC that investors will have to be cautious after the Federal Reserve adjusts its highly flexible monetary policies.
“It’s only while the Fed is leaning very hard that you have to worry. I mean, we could make the market go up 30% or 40% before it goes down that 20%” after a change in the exchange rate. Fed, Siegel told the Half Time Report. We̵
Siegel said he expects to see a booming economy this year, as the last of the economic restrictions of the Kovid era has been lifted and vaccinations allow travel and other activities to be reactivated. However, this is likely to unleash inflationary pressures, he said.
“I think interest rates and inflation will rise significantly above what the Fed predicts. We will have a strong inflation year. I think 4% to 5%,” said the longtime market bull.
Economic conditions of this nature will force the central bank to act earlier than currently expected, Siegel said. “But in the meantime, enjoy this journey. It will continue … towards the end of the year.”
US stocks were higher around noon on Thursday, with the Nasdaq down about 1% from the real standout. The index with high technical indicators collapsed on Wednesday, but remained at about 2.9% of its record in February. The S&P 500 added to Wednesday’s record close. The Dow Jones industrial average was higher, but still below Monday’s record.
The ten-year treasury yield, still below 1.7% on Thursday, has been fairly stable recently. The rapid jump in market interest rates in 2021, including the expiration of 14-month highs in late March, toppled growth stocks, many of them technological names, as higher borrowing costs undermine the value of future profits and squeeze estimates.
The bond market is at odds with the Federal Reserve this year, as traders are pushing yields from the belief that stronger economic growth and inflation will force central bankers to rise near zero short-term interest rates and reduce mass purchases of assets. early in the forecasts.
At its meeting in March, the Fed sharply increased its expectations for growth, but pointed to the possibility of no increase in the rate in 2023, despite the improving outlook and a turnaround this year to higher inflation.
Fed Chairman Jerome Powell reiterated the central bank’s political stance on Thursday, saying at an International Monetary Fund seminar that asset purchases “will continue at the current pace until we make significant progress towards our goals.”
“We’re not looking at forecasts for that purpose. We’re looking at real progress toward our goals so we can measure it,” Powell said at the event, moderated by Sarah Eisen of CNBC.
So far, Powell added, the economic recovery has been “uneven and incomplete,” with lower-income U.S. residents seeing fewer employment gains.
In response to Powell’s remarks from the IMF, Siegel said, “I’ve never heard a Fed chairman be so stupid.”
Why stocks are still attractive
One of the key reasons why stocks can still rise despite rising inflation is that holding shares would still be better than bonds or holding money, Siegel said.
“People will turn around and say, ‘Okay, so there’s more inflation and the 10-year year is rising?’ What will I do with my money? Does that mean I want to be out of the stock market when [corporations] have greater price power than they have probably had in two decades or more? Seagle said, “No, not yet.”
At one point, Siegel said that perceptions of investors would change.
“Eventually, the Fed will just have to step in and say, ‘Wow.’ We just have a little too much inflation. “It’s time to be careful,” Siegel said. “I wouldn’t be really careful right now. I still think the bull market is on for 2021. “