Forecast for Federal Reserve Policy
Jeremy Siegel, a long-term market bull, forecasts a significant drop unrelated to the COVID-19 spike dangers.
He predicts that a significant shift in Federal Reserve policy will aid in the fight against high inflation.
“I’m not convinced the market will be ready for a U-turn if the Fed suddenly becomes tougher.” If we have another terrible inflation report, Jerome Powell will take this turn, according to a Wharton finance expert.
The consumer price index increased by 6.2 percent in October, according to data released by the Labor Department earlier this month. It was the largest increase in almost 30 years.
In terms of anti-inflationary measures, Siegel blames the Fed for being behind the curve.
Generally, money is continuously flowing in the market since the Federal Reserve has not made any major moves,” Siegel added. “Quantitative easing is still going on at the Fed.”
He believes the Fed’s policy meeting on December 14 and 15 will be the turning point.
Siegel warns that if it suggests a more forceful strategy to maintain growing prices, a correction might occur.
No alternative seen
“I’m still partially completely invested because of no choice,” he explained. “Bonds, in my opinion, are getting worse and worse. Cash is evaporating at a rate of inflation of over 6%, and I believe it will continue to rise.”
According to Siegel, increased prices will be spread out over several years, with cumulative inflation reaching 20% to 25%.
“Even if equities are a little choppy, you have to want to hold real assets in this circumstance.” Stocks, on the other hand, are actual assets,” he added. “Everything that will hold its value in the long run is dependent on the business.
The Nasdaq, which is at record highs and crossed 16,000 for the first time ever on Friday, would face headwinds from the inflation background, he says.
“If interest rates rise, particularly high-priced stocks that discount cash flows far into the future… [will] be impacted by the discounting mechanism,” he added.
The unprecedented success of growth stocks, according to Siegel, is due to Delta variation worries and decreasing Treasury yields. He believes that as more people acquire boosters, the Covid-19 increase will recede.
“The so-called reopening trade has come to an end as a result of this,” he stated. “Value has become low.”
If Siegel is correct about the Fed’s unexpected policy shift, he sees Wall Street fast recovering from the shock and a renewed demand to purchase dividend companies and financials in 2022.
With reduced interest rates, [financials] have been selling off recently, according to Siegel. “They might return,” he added.