- Jeremy Siegel thinks the odds of Wall Street hitting earnings estimates have greatly improved.
- That's because events that increase the likelihood of higher rates also lower the odds of a recession.
Corporate earnings estimates on Wall Street will likely to be matched despite the potential for higher interest rates, according to Wharton professor Jeremy Siegel.
In an interview with CNBC on Tuesday, Siegel said that the strength of recent payroll data is aiding a narrative that consumer spending could continue to inch higher, which also means that the central bank may need to tighten benchmark interest rates further.
"Stock prices are a fight between the numerator, which is earnings, and the denominator, which is interest rates," Siegel said.
However, the same events that could push the Fed to raise rates also push down the odds of a recession in the US, and that's exactly that type of relationship that could help earnings reach their estimates, Siegel said.
"So the strong payroll report [means] wow, we could have a strong consumer, we could have GDP going up more than the Fed expects, we could have earnings really being realized instead of everyone saying 'oh we're gonna go down to $200 or $180 or whatever,'" Siegel said.
Meanwhile, this has led to a "standoff" in the stock market as investors see the odds of more rate hikes rising alongside lower odds of a recession.
Siegel sits firmly in the bulls' camp among the market's top commentators, with views split evenly between those calling for an imminent recession and stock market decline, and those who say the US economy can still stick a soft landing and stocks will continue to rally.
On Tuesday, Morgan Stanley's Mike Wilson made the bear case for stocks to fall more than 25% within month. According to the bank's top stock strategist, US equities are in the "death zone" after rallying too far in the first six weeks of the year.