Stocks will climb as inflation cools, rates fall, and a recession is avoided, Jeremy Siegel says.
The “Wizard of Wharton” says the latest rally was sparked by the Fed’s openness to cutting rates.
Siegel recently said stocks could jump 15% and home prices could rise 10% next year.
Stocks will head higher next year, and their latest rally is built on more than just hopes for a bunch of interest-rate cuts in the months ahead, Jeremy Siegel says.
“On the stock market, I’m very bullish,” the Wharton finance professor said during a recent episode of the “Behind the Markets” podcast. He noted that while the market is trading at about 20 times next year’s earnings, the multiple is closer to 15 times if tech stocks are excluded. That could pave the way for value stocks to outperform growth stocks in 2024, Siegel said.
The S&P 500 and Nasdaq Composite have rallied 24% and 44% respectively this year, fueled by investor buzz around artificial intelligence and mounting hopes that the inflation threat is over, a recession has been avoided, and interest rates have peaked and will fall soon. The biggest winners have been technology stocks like Tesla and Nvidia, which have doubled and tripled in price respectively this year.
Siegel, the so-called Wizard of Wharton and author of “Stocks for the Long Run” rooted his positive outlook in the strong business environment.
“There’s no signs of the economy falling apart,” he said, noting that fourth-quarter US GDP estimates have risen, jobless claims have remained low, inflation has receded, and homebuilding has remained strong.
“That’s the best possible news for the market,” he continued. Siegel explained that he’s not worried about investors pricing in more rate cuts next year than the Federal Reserve, as the US central bank is biased toward undershooting with its estimates as it doesn’t want to stoke inflation. He also argued that stocks jumped after the Fed’s latest meeting not because investors are betting big on rate cuts next year, but because the Fed signaled it would be willing to cut rates if the economy falters, which assuaged fears of a severe depression.
“The biggest threat was stubbornness of the Fed on the way down, as of course they were overly stubborn on the way up,” Siegel said. “That threat has been certainly softened, if not neutralized.”
WisdomTree’s senior investment strategy advisor is known for his unwavering optimism. He said at a recent conference that stocks could gain another 10% to 15% in 2024, and house prices could rise by 5% to 10%. Siegel also called for inflation to slow to around 2.5% by next December, pegged the risk of a recession as below 50%, and suggested the Fed might cut rates five or six times to below 4% next year.
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