- Wharton professor Jeremy Siegel sees three big surprises rocking the stock market in 2023.
- Siegel told CNBC that the federal funds rate could be halved by the end of this year and drop to 2%.
- Instead of going to 5%, by the end of [2023]… I think we could see a fed funds rate of 2% to 3% by the end of the year,” Siegel said.
Wharton professor Jeremy Siegel expects some big surprises in 2023 that will rock the stock market and cause it to do the exact opposite of what most people expect.
In one interview with CNBC FridaySiegel presented his bullish pitch for equities, in which he sees a 15% jump occurring in the first few months of the year.
“I’ve never seen this much of a decline. There’s never been a time when 60% of economists predicted a recession. And when everyone is on one side, I become very suspicious. I think there could be some real surprises [in 2023]“, said Siegel.
These are the three potential surprises investors should watch for in 2023, according to Siegel.
1. Expect a spike in job losses, as well as a spike in profits.
Many investors expect job losses to increase in 2023 as the economy finally slows. And with it, profits should also fall. This is why most market strategists expect flat or negative earnings growth for the S&P 500 this year. But not Siegel.
“I think we could see the labor market loosening dramatically, even some job losses, but this GDP is growing much faster than most people think. We have a chance if the Fed pivots, d “really avoid a recession and have a good year for earnings. Because if productivity comes back, that puts downward pressure on prices, it puts upward pressure on margins,” he said. he explains.
Everyone who says “oh my God, it’s 2023”. [earnings] The estimates are way too high “one might be surprised that a lot of them could turn out to be what the profits are going to be,” Siegel said.
2. The Fed will significantly cut interest rates.
The market currently expects the Federal Reserve to raise interest rates by at least 50 basis points in 2023, moving the federal funds rate closer to the Fed’s ultimate target by just over 5%. But Siegel thinks that’s highly unlikely.
“Why should everyone believe the Fed when in fact the Fed hasn’t done anything it told us it was going to do for the past 18 months?” he asked, referring to the fact that at the end of 2021, the Fed expected no interest rate hikes in 2022. The Fed eventually raised rates by 425 basis points.
He added that the Fed finally realized that house prices were falling and would send inflation indicators lower.
“If you get a job loss or an increase in the unemployment rate to 3.8% or 3.9%, you’ll get a different tone from the Fed…instead of going to 5%, here the end of [2023]… I think we could see a fed funds rate of 2% to 3% by the end of the year,” Siegel said.
3. The stock market will jump 15% in the first half.
Following than a handful of Wall Street strategists expect the stock market to continue its sell-off in the first half of 2023, finally finding its bottom as the wider economy slips into recession. From there, those same strategists expect a recovery in the second half as investors look to a future recovery in earnings.
Again, Siegel disagrees.
“My projection is a 15% increase, and believe it or not…I think the first half might be the increase that will surprise people, because the market is very forward-looking,” he said. -he declares.
“The market is looking forward. You can’t wait for the sky to be blue before you say ‘oh yes, those earnings will now rise, I’m going to buy’. Prices will rise long before earnings react to this recession. So even if you have a recession, I think it’s discounted.”
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