- Wharton professor Jeremy Siegel believes the stock market has bottomed and bond yields have peaked.
- Siegel told CNBC on Tuesday that last week’s CPI report and this week’s PPI data move up the schedule of a Fed pivot.
- “They’re probably going to go 50 basis points, but that should be the absolute pause,” Siegel said.
Bond yields have likely peaked and the stock market won’t retest its bottom, Wharton professor Jeremy Siegel told CNBC in an interview on Tuesday.
His confidence stems from the fact that on-the-ground inflation is easing, and it’s starting to show up in the data that is so closely tracked by the Federal Reserve. That progress on inflation means fewer interest rate hikes are likely.
“They’re probably going to go 50 basis points [in December], but that should be the absolute pause. If I were there, I’d say you could pause right now, but I think the day of recognition is sooner,” Siegel said.
“The pendulum has swung too far. They way underestimated inflation for so long… He [Fed Chair Jerome Powell] has to face the facts on the ground.”
And the facts on the ground are starting to show signs of easing inflation. Last week’s release of the October CPI report showed a year-over-year gain of 7.7%, below economist estimates for a gain of 7.9% and a drop from June’s peak of 9.1%.
Today’s release of the producer price index showed prices rose just 0.2% in October, half the economist estimate of 0.4%. The year-over-year gain in the PPI was 8%, below the 11.7% peak reached in March.
“The Fed will come to that realization” that price rises have cooled down on the ground, said Siegel, who has long been critical of the Fed’s reliance on lagging economic data, and still believes “inflation is over” when you use more current housing data.
“He [Powell] was confronted with the fact that there are two housing indexes, one that’s forward looking and one that’s backward looking. He basically said ‘yeah, and I like the backward looking one better.’ I said oh my God,” Siegel said.
He also was unimpressed with the Fed’s apparent hawk-like focus on reining in the labor market and squashing wage growth, considering that wages haven’t kept up with high inflation.
“There’s too much emphasis on the labor market. Workers are trying to catch up… the real wage is down 3% or 4%. Workers are falling behind, they’re just trying to catch up. It’s hard for me to think that that is cause to push inflation when wages have gone up less than inflation,” Siegel said. “All of a sudden the Fed is so focused on the wages.
Earlier this month, he predicted up to 30% gains in the stock market over the next two years.
“I’ve often described this market like it’s coiled up, just waiting for the Fed to say ‘alright, I do actually see that inflation has been solved,'” Siegel said Tuesday.