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The inflationary threat has passed but unemployment is expected to jump, said Jeremy Siegel.
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The US economy can still avoid a recession with the help of the Fed, argues the Wharton professor.
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Siegel suggested the stock market had already bottomed and could jump 15% next year.
The inflationary threat has faded, unemployment is set to soar and the US economy can still escape a recession, Jeremy Siegel said in a gust of interviews and comment released this week.
The Wharton finance professor and author of “Stocks for the Long Run” criticized the Federal Reserve for raising rates too aggressively in response to soaring prices. Moreover, he suggested that the US stock market had already bottomed out and could jump as much as 15% next year.
Here are Siegel’s top 12 quotes this week, broken down by topic and lightly edited for length and clarity:
Inflation
1. “It’s negative now, it’ll be negative next month, and it’s actually been negative for two months.” (Siegel was referring to the core consumer price index, which excludes volatile food and energy prices. He noted that it would be negative if it included current rather than historical housing data. .)
2. “Inflation is, like i said a month agomore than.”
Unemployment
3. “We could really see a quick easing in the labor market as they realize they don’t have to hoard any more labor.” (Siegel argued that employers were hiring excess labor during the pandemic because they were worried about labor shortages, but as those fears fade and productivity rises, they could downsize.)
4. “Employment hasn’t slowed noticeably yet, but I think the employment data is likely to deteriorate significantly and quickly.”
Fed interest rate policy
5. “They’re going to err in exactly the opposite direction. They were way too loose before, the funds rate must have gone up a lot. And now they’re way too tight.” (Siegel was warning that the Fed had overreacted to inflation and raised interest rates too much.)
6. “I think the first rate cut could come around the middle of the year, and then it could be pretty quick as the labor market really loosens and inflation comes down. I actually bet we could see a handle 2 on the fed funds rate by next December. I think just like the upside surprise, we could see a downside surprise.” (Siegel was suggesting that the Fed could cut its benchmark rate from over 4% today to less than 3% by the end of next year.)
The outlook for equities
7. “I think we’ve seen the bottom, whether it’s June or October. Even a mild recession wouldn’t drive earnings down enough to cause a new bottom in the stock market.”
8. “When the Fed gets it – and they will get it next year – I think we have a good 10%, 15% rally for the stock market.”
9. People say this is the most anticipated recession of all time. When too many people are forecasting something, it often pushes the market below its fundamental values. A lot of bad news is now factored into the prices. Surprises are more likely to be on the upside. only the downside.
10. “I’ve never seen so much bearish. This excess bearishness means this is a good opportunity for investors.”
The risk of recession
11. “There’s a chance we could avoid the worst of a recession, but that requires the Fed to recognize the disinflationary forces I see everywhere.”
12. “We’re not going to have a strong labor market, but we might have stronger GDP and we might have stronger margins, and we might not have a recession.” (Siegel was suggesting that fewer but more productive workers could support economic growth and corporate profit margins against inflation, helping the United States avoid a recession.)
Read the original article at Business Intern
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