- Jeremy Siegel expects stocks to hit fresh highs, and sees only a 30% chance of a recession.
- The "Wizard of Wharton" says the Fed may be done with hiking rates, and might cut them if needed.
Stocks are headed to new highs, and the risk of a recession has plunged to about 30%, Jeremy Siegel says.
The "Wizard of Wharton" issued that upbeat forecast in his weekly WisdomTree commentary, published on Monday. He suggested the Federal Reserve may be done hiking interest rates, and might even cut them if needed. He also touted the US economy's recent strength as powerful support for consumer spending, corporate profits, and asset prices.
"Last week was the best news conference Powell delivered as Fed chairman," Siegel wrote. He praised the central-bank chief for taking a more balanced view on the threat of inflation versus the risks of tighter lending. Powell also signaled that further rate hikes aren't certain, they'll depend on the economic data that rolls in.
"This is a very welcome development for the markets," Siegel said.
The retired Wharton finance professor recalled the dire situation earlier this year, when multiple regional banks collapsed in March, and commodity prices slumped in May.
He contrasted that with the current backdrop: house prices climbed for a fourth straight month in June after dropping for seven months in a row, the money supply is growing again, and the Fed doesn't seem to have gone overboard with its rate hikes given the economy's continued strength.
Siegel also highlighted that US gross domestic product (GDP) rose by a solid 2.4% last quarter, jobless claims were modest in July, and consumer sentiment remains buoyant. The robust performance has slashed the chances of the "greatest fear for markets" becoming a reality, he said.
"I've lowered my probability of recession to below 50%," he wrote. "If forced to give a probability, perhaps I would say 30%."
"We don't have a runaway booming economy, but the recent reports indicate a strong economy," he added.
Siegel did warn that a flurry of credit-card bills, tuition charges, and student-loan repayments this fall could undercut consumer demand, the engine of the US economy. But the Fed might respond by cutting rates, especially if unemployment ticks up and the Biden administration puts pressure on Powell ahead of the presidential election next year, he said.
"All this economic view is good for stocks and earnings," Siegel said. "For now, it looks like the markets are bound to make new highs."
The veteran economist and commentator shared a similarly rosy outlook during a CNBC interview on Friday.
"Lower inflation and stronger economy and good guidance and good profits," he said. "What's to stop this market now?"