Usually Bullish Siegel Voices Caution on Stocks


Wharton economist Jeremy Siegel, who often takes a bullish stock market view, is voicing more caution on equities after the Federal Reserve’s latest economic projections.

Those central bank forecasts predict a recession this year, the emeritus finance professor said Monday in his weekly commentary on WisdomTree, which he serves as senior investment strategy advisor.

“Equities will likely struggle with recession risk rising and an overly tight Federal Reserve,” Siegel said.

“Cyclical and value equities often face more pressures in that environment,” he explained. “If the Fed gets it, we can avoid the worst-case scenarios. But conservative positioning makes sense at the moment.”


Though the Fed approved a 25-basis-point hike in interest rates a week ago, Fed Chair Jerome Powell reluctantly pivoted to that level despite preferring a 50-basis-point jump.

“His tone in the press conference was hawkish,” Seigel said.

The Fed lowered its 2023 GDP projections to 0.4%, which implies that the economy is set to have average negative growth over the next three quarters and thus would enter a recession, Siegel explained.

The central bank also predicts negative job growth for the next nine months and a rise in the unemployment rate to 4.6%, he said.

“I was further disturbed that Powell said the Fed did not, under this dire scenario, even discuss whether any rate cuts would occur by end of the year. The bond and Fed funds futures markets are saying the Fed will have to cut at least two to three times this year given the Fed’s prediction,” Siegel said.

With economic data last week mixed — initial jobless claims were strong, the durable goods report very weak — “the risk of recession has increased clearly,” he said.

Even though the Fed raised by 25 basis points when it could have gone to 50, most economists believe the current situation is significantly more serious. One economist has even suggested that the expected bank lending contraction might be equivalent to rate hikes of 50 to 150 basis points, Siegel explained, adding the Fed “is being too sanguine about the current lending contraction” and needs to be more cautious.

“Maybe the markets will knock sense into the Fed. And I do think the Fed will be lowering rates by the end of the year and perhaps easing very rapidly,” Siegel said.