Stockmarkets could be getting ready to rally from their recent sharp sell off, reckons Jeremy Siegel. However, investors may need to be patient for a little longer – and if the US fails to avoid recession, all bets are off.
The finance professor, who wrote the 1994 investment bestseller Stocks for the Long Run, told CNBC that the first quarter of the year might be hard going. But overall he thinks the market slide last year was simply due to investors getting ahead of themselves. “I think we swung too positive last summer and now I think we’ve swung too negative… We went from a rosy view to… ‘oh my God there’s going to be a recession’.”
Siegel acknowledges that if a recession does arrive in the next 12 months, stocks could “face a plunge of another 5% or 10%”, notes MarketWatch. But with US employment still strong and economic growth solid, he doesn’t see that happening. “We’ll be wobbling to a slowdown but not a recession,” he told CNBC.
Another reason for Siegel’s underlying optimism is that he doesn’t expect Fed governor Jerome Powell – who raised interest rates four times last year – to raise rates again as long as the ten-year US Treasury yield is sitting below 3%. Even the ongoing trade dispute does not phase Siegel – he notes that weak growth in China, combined with President Donald Trump’s reluctance to do anything else that might rattle US markets, means that “they’re both motivated” to come to a mutually beneficial deal.