Wharton professor Jeremy Siegel predicts the fresh bull market in stocks isn’t done yet, despite what he calls the Federal Reserve’s ongoing “war on growth.”
Siegel’s optimistic perspective comes after a strong H1 2023 performance in the stock market, led by the surge in mega-cap tech firms amid excitement around AI technologies and speculation that the Federal Reserve might soon ease its stance on interest rates. This robust performance led to a 16% rise in the S&P 500 within the first half of 2023, already outpacing Siegel’s initial prediction of a 15% climb for the full year.
“The momentum is still there. It can continue a lot longer,” said Siegel during a recent interview with CNBC, asserting that the rally might only be derailed by disappointing economic data or a slump in corporate earnings.
However, should the upward trend in stocks be interrupted, Siegel believes the rally is still likely to persist, buoyed by investors hungry for the next bull market following the disappointing performance in 2022.
Yet, despite this positive outlook, Siegel warns of lurking market risks, particularly in light of the Federal Reserve’s potential for an over-restrictive monetary policy.
Siegel has been a consistent critic of the Fed over the past year, especially as interest rates were steeply raised by 1,700% to combat inflation—a move he believes might trigger another recession. However, he notes that inflation indicators reviewed at the Fed’s latest policy meeting have come in at or below expectations.
Despite this, signals from the Fed suggest elevated rates might persist throughout the year, with the market now pricing in an 86% probability of a further 25 basis-point rate hike at the next policy meeting, as per the CME FedWatch tool.
Siegel dubs this Fed policy a “war on growth,” warning it could lead to increased downside risks for stocks in the latter half of the year. However, he maintains that the rally could continue in the short term.
Siegel’s stance on the economy and markets has fluctuated throughout the past year. In January, he forecasted a new bull market, only to caution in June that the stock rally could lose steam. Siegel fears a mild recession could impact the economy in the coming months—a prospect that could introduce further uncertainties in the market trajectory.