Wharton professor Jeremy Siegel expects stocks to soar 30% in 2 years - and house prices to tumble 15% from their peak
- Jeremy Siegel expects US stocks to surge by 20% to 30% over the next two years.
- The Wharton professor sees interest rates dragging house prices down by 10% to 15% from their peak.
Jeremy Siegel expects US stocks to soar by up to 30% over the next two years, and predicts the housing market will suffer a historic slump if the Federal Reserve doesn't cut interest rates soon.
"After two years, the stock market is going to be 20% to 30% higher than it is today," Siegel said on Bloomberg's "Masters in Business" podcast this week.
The S&P 500 has tumbled 19% this year to under 4,000 points, while the Nasdaq Composite has tanked by 31% to below 11,000 points. Siegel's forecast suggests the benchmark index could surpass 5,000 points for the first time ever in 2024, while its tech-heavy sister might rebound to its April high of around 14,000 points.
"Stocks are quite undervalued," Siegel said. "If you buy stocks, in a couple of years, you're going to be very happy."
The Wharton finance professor and author of "Stocks for the Long Run" is far more bearish on the real estate sector, as he expects higher interest rates to weigh on demand and raise the cost of mortgages.
"Just to keep at these rates to 2023 will cause the second-worst collapse of the housing market in the post-war period," he said.
"I actually think housing prices, from their peak, are going to go down 10% to 15%," he added, noting that further rate hikes could send them even lower.
Siegel has repeatedly criticized the Fed for waiting too long to address inflation, which hit a 40-year high of 9.1% in June, and remained above 8% in September. However, he now fears the US central bank is going overboard in tackling the threat, as it has already raised rates from near zero in March to upwards of 3% today.
"I'm flabbergasted," Siegel said about the Fed scrambling to cool inflation based on lagging indicators such as rent increases. The central bank isn't paying enough attention to the dollar's surge or the decline in the US money supply this year, which point to slowing growth and waning liquidity, he said.
The markets and economics guru argued the Fed should be pivoting towards cutting rates instead of raising them. He suggested the central bank should hike by only 50 basis points this month, and then wait and see whether the inflation threat fades, instead of pursuing two mega-hikes of 75 basis points as some commentators expect.
"What the market is so scared about is there seems to be no limit to their talk: 'Hike, hike, hike, hike, hike," he said. "The longer they continue on this path, that we keep on hiking or we're going to stay high for longer, I think the recession becomes a real possibility."
"We are in for a big trough," he added, if the Fed waits to pull back until inflation returns to its target rate of 2% a year.