Despite recent stock market turbulence, Wharton's Professor Jeremy Siegel offers a positive outlook, indicating potential gains on the horizon as 2023 draws to a close.
Siegel cites historical trends to bolster his stance, mentioning, "Over the past quarter-century, November ranks as the year's second-strongest month for stocks, narrowly trailing April."
He anticipates this pattern will translate into an impending year-end boost for equities. Delving into valuations, Siegel notes their compelling nature. He predicts a brighter economic growth trajectory in the upcoming year, emphasizing that the current rise in real interest rates signals optimism about 2024's growth potential.
Although the stock market may face challenges adjusting to these anticipated heightened earnings, he believes the earnings will materialize. While the market keenly awaits the Federal Reserve's imminent decision on interest rates, Siegel expects no groundbreaking announcements.
Since March 2022, there have been 11 rate hikes, punctuated by two pauses, including one in the most recent September meeting. Siegel forecasts a continuation of this pattern, suggesting, "The Fed will maintain its stance this week, preserving options for future adjustments." Federal Reserve Chairman Jerome Powell's recent remarks, signaling an extended period of high rates, were a significant contributor to the market's downturn.
This spurred a sharp rise in Treasury yields as investors offloaded bonds, leading to a profound market shift. However, Siegel proposes a nearing peak for these yields. He predicts a possible apex for the 10-year Treasury at around 5.25%.
Comparatively, these levels are considerably lower than those witnessed in the 1980s, a period which Siegel recalls was marked by unusually low price-to-earnings ratios.
With the S&P 500 currently showing a 7.7% growth for the year and a 16% rise since its October 2022 trough, Siegel acknowledges the high valuations in the market's top-performing stocks. However, he emphasizes that, more broadly, valuations remain at historical lows, offering a silver lining for investors.
