The new bull market in stocks shows promising signs of further expansion, even as central bankers engage in what Wharton professor Jeremy Siegel describes as a “war on growth.” Recent robust performance in stocks during the first half of 2023, particularly in mega-cap tech firms driven by AI enthusiasm and expectations of the Federal Reserve’s potential interest rate adjustments, has propelled the S&P 500 to a 16% gain, surpassing Siegel’s initial forecast of a 15% rise by the end of the year.
Siegel, in an interview with CNBC, expressed confidence in the market’s potential for continued growth, stating, “It can continue a lot longer … the momentum is still there.” He believes that disappointing economic data or a decline in corporate earnings would be necessary to derail the rally. Even if the upward trend encounters disruptions, Siegel anticipates that the market rally would likely persevere due to investors’ eagerness to participate in the next bull market following the lackluster performance of 2022. However, he cautioned about potential risks stemming from the Federal Reserve’s risk of overtightening the economy through ultra-restrictive monetary policies.
The Wharton professor has been vocal in his criticism of the Fed over the past year, as central bankers aggressively raised interest rates by 1,700% in an attempt to combat inflation. Siegel warned that such actions could push the economy into another recession. Nevertheless, recent inflation indicators reviewed during the Fed’s policy meeting have largely aligned with or fallen below expectations.
Despite the Fed’s indications that rates may remain elevated throughout the year, with market projections currently suggesting an 86% likelihood of a 25 basis-point rate hike at the next policy meeting, Siegel expressed concerns about the impact of this “war on growth” on stocks. He acknowledged the potential downside risks for stocks in the second half of the year, but he remains cautiously optimistic about the short-term continuation of the rally.
Siegel’s views on the economy and markets have undergone several shifts in the past year. In January, he predicted a new bull market before issuing a warning in June that the stock rally could falter due to a potential mild recession in the United States. Siegel believes that this mild recession could potentially impact the economy within the coming months.
As the bull market in stocks persists, investors and market participants will closely monitor economic data, corporate earnings, and the Federal Reserve’s monetary policy decisions for potential impacts on the market’s trajectory. The interplay between market forces and central bank actions will continue to shape the future direction of stocks, and market participants will navigate the evolving landscape with a watchful eye on potential risks and opportunities.
