The 'Wizard Of Wharton' Says Stocks Are On Solid Ground And House Prices Are Shaking Off Mortgage Pain
- Jeremy Siegel says the US stock market remains strong and housing prices are showing resilience.
- Investors see stocks and houses as valuable hedges against inflation, says Horton Wizard.
- A weak labor market could mean the Federal Reserve won't raise interest rates until December.
Jeremy Siegel says the stock market remains strong and the housing market is currently recovering from rising mortgage rates.
"Stocks are here to stay," the retired finance professor known as the Horton Wizard said Friday on his "Behind the Markets" podcast. The benchmark S&P 500 is up nearly 18% this year, while the tech-heavy Nasdaq Composite is up 34%.
Siegel believes stocks are in good shape because the threat of inflation has receded, so the Federal Reserve won't have to raise interest rates as aggressively as many fear.
"The prospect of a Federal Reserve rate hike in September is now close to zero and essentially puts a November rate hike in doubt," he said, referring to the central bank's next two meetings.
The author of The Stocks for the Long Run also noted that next year's earnings forecasts for the S&P 500 rose last month.
"That means a stronger economy, better earnings, better productivity prospects," he said, adding that stocks would have risen sharply on Friday had the 10-year Treasury yield not risen.
As for the housing market, Siegel said he was surprised that prices rose 0.7% in June, according to the Case-Shiller National Home Price Index. Mortgage rates have risen in response to Federal Reserve interest rate hikes, making homes cheaper and deterring potential sellers from listing because they don't want to give up their low-interest mortgages. But this year, prices have risen due to high demand and insufficient supply.
Siegel, chief economist at WisdomTree, suggests stocks and real estate have eased pressure this year as investors see them as hedges against rising prices.
"Housing and stocks are the best long-term hedges against inflation, and that's what people want," Siegel said. On the other hand, investors penalize bonds because they don't offer protection against certain risks or really attractive returns.
A veteran economist examines why the latest jobs report showing higher unemployment is good news for markets.
"It's not as tight as a drum anymore, people are coming in," he said, adding that the labor market, the main driver of U.S. inflation, could lift prices as wages rise. He also cited the latest JOLTS data showing job losses in July as further evidence of reduced demand for workers.
He said signs of a slowing labor market could prompt the Federal Reserve to wait until at least December to raise interest rates and hit the economy again.
Last spring, inflation hit 9.1%, prompting the Federal Reserve to raise interest rates from zero to the current 5%. Higher interest rates can slow price growth by encouraging saving rather than spending and making borrowing more expensive. But they can reduce demand, lower asset prices and even push the economy into recession.
