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Jeremy Siegel says the US stock market is on solid ground and housing prices are proving resilient.
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The ‘Wizard of Wharton’ says that investors consider stocks and houses valuable protection against inflation.
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A weaker labor market could mean that the Fed will not raise rates until December at the earliest.
Jeremy Siegel says the stock market is solidly based, and the housing market is shrugging off the rise in mortgage rates for now.
“Stocks can hold up here,” the retired finance professor, known as the “Wizard of Wharton,” said Friday in the “Behind the Markets” podcast. The benchmark S&P 500 index is up nearly 18% this year, while the tech-heavy Nasdaq Composite is up 34%.
Siegel believes stocks are in good shape as the threat of inflation recedes, so the Federal Reserve doesn’t have to raise rates as aggressively as many feared.
“The probability that the Fed will raise in September is now virtually nil, and in fact this puts the November hike in doubt,” he said, referring to the central bank’s next two meetings.
The author of “Stocks for the Long Run” also noted that forecasts for next year earnings of the S&P 500 have risen over the past month.
“That means a stronger economy, better earnings and good visibility into productivity,” he said, adding that stocks would have risen sharply on Friday if 10-year Treasury yields had not risen.
On the housing market, Siegel said he was surprised that prices rose 0.7% in June, according to Case-Shiller’s National House Price Index. Mortgage rates have soared in response to the Fed’s rate hikes, making homes much less affordable and deterring would-be sellers from putting their homes on the market as they are reluctant to give up their mortgages which they can get at much lower rates. have closed. However, strong demand and insufficient supply have driven up prices this year.
Siegel, a senior economist at WisdomTree, suggested that one reason both stocks and housing have shrugged off the pressure this year is that investors see them as a defense against rising prices.
“Residential and stocks are the best long-term protection against inflation and that’s what people want,” Siegel said. On the other hand, investors penalize bonds for failing to protect them against certain risks or not offering attractive returns in real terms, he added.
The veteran economist also explored why the latest jobs report, which showed that unemployment has risen, is good news for markets.
“It’s not as tight as a drum anymore, people are coming in,” he said of the labor market, a major driver of US inflation as wage increases can fuel higher prices. He also highlighted the most recent JOLTS data, which showed job vacancies falling in July, as further evidence that demand for workers is cooling.
Signs of a weakening labor market could lead the Fed to wait until at least December to raise rates and blame the economy again, he said.
Inflation rose to 9.1% last spring, prompting the Fed to raise rates from near zero to over 5% today. Higher interest rates can slow price growth by encouraging saving rather than spending and making borrowing more expensive. But they can also dampen demand, drive down asset prices and even push an economy into recession.
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