Wharton School finance professor Jeremy Siegel expects the stock market rally will continue until the end of the year. What happens after depends on when the Federal Reserve will step in and break up the party. In an interview with CNBC, Siegel said that investors need to apply caution once the Federal Reserve decides to adjust its highly accommodative monetary policies.
Jeremy Siegel Says We’re in the Third Inning Of The Boom Right Now
Speaking on CNBC’s Halftime Report, Siegel still sees good time this year. “It isn’t until the Fed leans really hard then you have to worry. I mean, we could have the market go up 30% or 40% before it goes down that 20%. We’re not in the ninth inning here. We’re more like in the third inning of the boom,” he observed.
The Wharton professor said he expects the remainder of the year to witness a roaring economy this year. The Covid-era economic restrictions started winding down. Meanwhile, vaccinations are happening in record numbers. Consequently, these developments allow for travel and other activities to pick up again. However, the improved situation can set off different triggers. “That is likely to unleash inflationary pressures, though,” he said. “I think interest rates and inflation are going to rise well above what the Fed has projected. We’re going to have a strong inflationary year. I think 4% to 5%,” Siegel added.
Enjoy The Ride
In that inflationary year, the economic conditions will force the central bank to act sooner than it wants to. Until then, Siegel advises investors to enjoy the ride. He sees the good times will continue at least until the end of the year.
Currently, US stocks are shooting up. Buoyed by technology stocks, all three major indices are reporting gains for the entire April. In fact, the S&P 500 closed Thursday at 4,097.17. This is the second day of posting record highs and 19th for the year. This is in contrast to March, where jitters on rising bond yields caused markets to lose the gains they made earlier this year. Defying the Fed, traders pushed yields up, hoping that stronger economic growth and inflation will force central bankers to raise currently low-interest rates. Also, they hoped the Fed would taper massive asset purchases sooner than they wanted to. Instead, the Fed confirmed that they have no plans to hike rates for the time being. Or, at least not until the economy fully recovers.
No Interest Rates Hikes For Now
Earlier on Thursday, Fed Chair Jerome Powell insisted they will not change their plans. At an International Monetary Fund seminar, he said that the Fed’s asset purchases “would continue at the current pace until we substantially further progress toward our goals.”
“We’re not looking at forecasts for this purpose. We’re looking at actual progress toward our goals so we’ll be able to measure that,” he added. At this point, he sees US economic recovery as uneven and incomplete. Despite increases in demand, lower-income Americans are seeing fewer employment gains. Meanwhile, Jeremy Siegel commented that Powell’s strategy is remarkable. “I have never heard a Fed chair so dovish,” he said.
Stocks Remain Attractive
Siegel believes that stocks remain attractive because owning equities remains a better option compared to buying bonds and hoarding cash. “People are going to turn around and say, ‘OK, so there’s more inflation and the 10-year is rising? What am I going to do with my money? Does that mean I want to be out of the stock market when [corporations] have more pricing power than they probably have had in two decades or more?’” Siegel said. “No, not yet,” he concluded.
Sadly, these good things won’t last forever. At some point, Jeremy Siegel said investors will start thinking differently. “Eventually, the Fed is just going to have to step in and say, ‘Wow. We’re just having a little bit too much inflation.’ That’s the time to be cautious. I would not really be cautious right now. I still think the bull market is on for 2021,” he concluded.
Watch the CNBC Interview with Wharton Professor Jeremy Siegel, who said Fed will hike rates sooner, but the bull market is on for 2021:
Do you agree with Wharton Professor Jeremy Siegel that stock rallies will continue until 2021? Will you take advantage of this period to invest more in the markets? Or, do you foresee the market crashing down sooner than later? Let us know what you think. Share your comments below.