The 'Wizard of Wharton' says stocks are on solid ground - and house prices are shaking off mortgage pain

• Jeremy Siegel says the US stock market is on firm ground and house prices are proving resilient.
• The "Wizard of Wharton" says investors view stocks and homes as valuable hedges against inflation.

Jeremy Siegel says the stock market is on firm footing, and the housing market is shaking off the surge in mortgage rates for now.

"Equities can hold in here," the retired finance professor known as the "Wizard of Wharton" said on the "Behind the Markets" podcast on Friday. The benchmark S&P 500 index has gained nearly 18% this year, while the tech-heavy Nasdaq Composite has surged by 34%.

Siegel believes stocks are in good shape because the inflation threat is receding, so the Federal Reserve won't have to hike interest rates as aggressively as many feared.

"The likelihood that the Fed will raise in September is now almost nil, and in fact it puts the November increase in doubt," he said, referring to the central bank's next two meetings.

The author of "Stocks for the Long Run" also noted that forecasts for S&P 500 profits next year have climbed over the last month.

"That means a stronger economy, better profits, good view towards productivity," he said, adding that stocks would have rallied strongly on Friday if not for a jump in the yield from 10-year Treasuries.

As for the housing market, Siegel said he was surprised to see prices climb 0.7% in June, according to the Case-Shiller national home price index. Mortgage rates have soared in response to the Fed's rate hikes, making homes far less affordable, and deterring would-be sellers from listing their homes as they're loath to give up mortgages they've locked in at much lower rates. However, strong demand and insufficient supply have shored up prices this year.

Siegel, a senior economist at WisdomTree, suggested one reason why both stocks and housing 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 are punishing bonds for failing to protect them against certain risks or offer attractive returns in real terms, he added.

The veteran economist also dug into why the latest jobs report, which showed unemployment ticking higher, is good news for markets.

"It's not tight as a drum anymore, there are people coming in," he said about the labor market, a key driver of US inflation as wage increases can fuel higher prices. He also highlighted the most recent JOLTS data, which showed the number of job openings fell in July, as further evidence that demand for workers is cooling.

Signs of a softening job market could lead the Fed to wait until at least December to raise rates and once again turn the screw on the economy, he said.

Inflation spiked as high as 9.1% last spring, spurring the Fed to hike interest rates from almost zero to over 5% today. Higher rates can slow price growth by encouraging saving over spending and making borrowing more expensive. But they can also temper demand, pull down asset prices, and even plunge an economy into recession.