Fear of an impending recession is keeping the S&P 500 below the 4,000 level for now but the benchmark index will have a strong 2023, says Professor Jeremey Siegel of the Wharton School – University of Pennsylvania.
Siegel says the Fed will have to pause
This morning on CNBC’s “Squawk Box”, Professor Siegel said the market could rally between 15% and 20% next year. If true, that would see the S&P 500 return to the near 4,800 level at which it started 2022.
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His bullish view is based on the thesis that inflation is coming down sharply and that will make the Fed “pause” by early 2023.
I think 90% of inflation is gone. Housing has declined but the way government computes it is so lagged that it’ll continue to show increases. I think finally, the Fed will say, on the ground, things are all declining and we got to think about that.
S&P 500 index to start 2023 with a rally
According to Professor Siegel, the Federal Reserve will raise rates by 50 bps in December and a mere hint of a “pause” would be enough to flare up a rally in the equities market.
As soon as the Fed gets it that inflation is basically over, you’ll see a big increase in equity prices. Even a strong statement that most of our rate increases are behind us could spark a December rally. If not, it’ll come in January.
Earlier this month, consumer prices were reported up 7.7% for October – a pleasant surprise considering the economists were expecting a 7.9% year-on-year increase instead.
On the back of that positive data, S&P 500 has climbed nearly 6.0% in just over a week.
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