Wharton professor Jeremy Siegel said a 10% drop in stocks is coming – and could be triggered by another bad inflation print

• Wharton professor Jeremy Siegel said he thinks stocks are set to fall 10%, perhaps as soon as December.
• "One more bad inflation report" could spur a stronger reaction from the Fed and stock market volatility, he said Friday.

Jeremy Siegel has said a "correction" in stocks is coming and may well be triggered by another strong inflation print, perhaps as soon as early December.

Siegel, finance professor at Wharton business school, told CNBC that hot-running inflation and the Federal Reserve's reaction to it are big risks for the equity market.

"If the Fed suddenly gets tougher, I'm not sure that the market is going to be ready for a U-turn that [Chair] Jerome Powell may take if we have one more bad inflation report," he told CNBC's "Trading Nation" on Friday.

Inflation rose to a 31-year high of 6.2% year-on-year in October, data showed earlier this month. The next inflation print is due on December 10.

So far, the Fed has trimmed its monthly bond purchases in reaction to the strong rate of price rises, but it is not expected to raise interest rates until the middle of 2022.

Siegel said the Fed is "way behind the curve, in my opinion, in terms of taking anti-inflationary actions."

He said the US central bank could be forced to change direction abruptly at its December 15 meeting. "There's where I think you're going to see more volatility in the equity market," he said.

"I do think a correction will come," Siegel said, without specifying a timeframe. "The question is how high stocks can get before then." A correction is most commonly understood to be a fall in stocks of at least 10% from recent highs.

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The S&P 500 has risen 32% over the past 12 months to reach 4,697.96 on Friday, and many analysts have said a correction would be no surprise.

Siegel was far from completely pessimistic about stocks. He said he's still "heavily invested" in equities because real returns on bonds are so low that "there is no alternative."

"Even with a little bit of bumpiness in stocks, you have to be wanting to hold real assets in this scenario. And stocks are real assets," he said.

The idea that there is no alternative to stocks — commonly known as "TINA" — helps explain why equities are buoyant despite sky-high inflation and central banks considering turning off the stimulus taps.

Siegel predicted that strong inflation would send investors towards stocks that will offer protection and yield over the next year.

He said the "conservative tech stocks" — likely a reference to the likes of Apple, Alphabet and Microsoft — will probably perform well. Siegel also suggested that financial services companies could benefit if interest rates rise.