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.
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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