- Jeremy Siegel says the US stock market is on solid footing and real estate prices are proving resilient.
- The “Wharton Wizard” says investors see stocks and houses as valuable hedges against inflation.
- A weaker labor market could mean the Fed won’t raise interest rates until December at the earliest.
Jeremy Siegel says the stock market is on solid footing and the housing market is currently recovering from rising mortgage rates.
“Stocks can hold their own here,” the retired finance professor known as the “Wizard of Wharton” said Friday on the “Behind the Markets” podcast. The benchmark S&P 500 has gained nearly 18% this year, while the tech-heavy Nasdaq Composite index has jumped 34%.
Siegel believes stocks are in good shape because the inflationary threat is receding, so the Federal Reserve won’t have to raise interest rates as aggressively as many feared.
“The likelihood of the Fed raising rates in September is now close to zero, and in fact that puts the November increase in doubt,” he said, referring to the central bank’s next two meetings.
The “Stocks for the Long Run” author also noted that the S&P 500 earnings forecast for next year has risen over the past month.
“That means a stronger economy, better earnings, a good view on productivity,” he said, adding that stocks would have rebounded strongly on Friday had it not been for a rise in the 10-year Treasury yield.
As for the real estate market, Siegel said he was surprised to see prices jump 0.7% in June, according to the Case-Shiller National House Price Index. Mortgage rates have skyrocketed in response to Fed rate hikes, making homes much less affordable and deterring potential sellers from listing their homes as they are reluctant to forgo mortgages they have taken out at rates much lower. However, strong demand and insufficient supply have supported prices this year.
Siegel, senior economist at WisdomTree, suggested that one reason stocks and real estate have shrugged off pressures this year is that investors view them as a defense against rising prices.
“Housing and stocks are the best long-term hedges against inflation and that’s what people want,” Siegel said. On the other hand, investors punish bonds for not protecting them against certain risks or offering attractive returns in real terms, he added.
The veteran economist also explained why the latest jobs report, which shows a rising unemployment rate, is good news for the markets.
“It’s not tight as a drum anymore, there are people coming in,” he said of the labor market, a key driver of US inflation, as wage increases can fuel the price increase. He also pointed to the most recent data from JOLTS, which shows the number of job openings fell in July, further evidence of slowing demand for workers.
Signs of a slowing labor market could lead the Fed to wait until at least December to raise rates and once again tighten the screws on the economy, he said.
Inflation hit 9.1% last spring, prompting the Fed to raise interest rates from near zero to over 5% today. Higher rates can slow price growth by encouraging saving rather than spending and making borrowing more expensive. But they can also dampen demand, depress asset prices, and even push an economy into recession.