(The Street) - Stocks could be in trouble if the Federal Reserve tightens monetary policy more forcefully, says renowned Wharton School finance professor Jeremy Siegel.
“Stocks love inflation until the Fed gets serious about it, and they have not been serious about it,” he told CNBC.
“I don’t think the bumps [for stocks] come until the Fed changes direction and says, ‘You know what, we’ve got to be much more serious.’ Maybe it’ll be at the December meeting. Maybe it’ll be a little bit later,” Siegel said.
Stocks slid Wednesday, after the consumer price index soared 6.2% for the 12 months through October, the highest rate since 1990.
The Fed plans to taper its bond buying gradually through the middle of next year. Many Fed watchers anticipate one interest-rate hike from the central bank next year, followed by several more in 2023.
Siegel said the stock market overall is fairly valued, and he expects it to do well until the Fed ratchets up its tightening.
The S&P 500 has generated a total return of 26% year-to-date through Tuesday and 34% for the last 12 months. The index traded at 4,645, down almost 1%, at last check.
Stocks are buoyed by plentiful liquidity, a lack of attractive alternatives and seasonal factors, Siegel said.
That “trumps inflation until [Fed Chairman Jerome] Powell says, ‘You know what, it [inflation] isn’t temporary. It’s more serious than we expected. We’re going to have to speed up taper and we may have to speed up the rise of interest rates.’”
By DAN WEIL
Wed, November 10, 2021
Dan is a freelance writer whose work has appeared in The Wall Street Journal, Barron's, Institutional Investor, The Washington Post and other publications.
