Jeremy Siegel’s 7 Market, Economic Predictions for 2022

Despite concerns about a potential recession as the Commerce Department reported late last week that U.S. gross domestic product unexpectedly fell at a 1.4% annualized rate in the first quarter of 2022, recession fears may be overblown, according to Jeremy Siegel, senior investment strategy advisor at WisdomTree and professor of finance at the Wharton School of the University of Pennsylvania.

“I understand all the recession talk,” he said Monday, in his latest weekly commentary.

“The Fed was slow to catch onto inflation and they likely will then be forced to over-react to inflation and then be slow to change when we do get a slowdown. But at a minimum the Fed needs to get to a neutral policy rate,” he said in this week’s commentary, “GDP Raising Questions About Health of Our Economy.”

But he added: “I emphasize again that I do not see a recession this year.”

A recession is defined as two straight quarters of negative GDP growth, typically accompanied by a slowing economy and higher unemployment. Although Q1 GDP declined after a strong Q4, the unemployment rate has continued to shrink.

Siegel provided seven predictions in his latest commentary, including that there won’t be a recession this year. Check out all his predictions in the gallery above.

1. There won’t be a recession this year.

Despite understanding why some are afraid a recession is possible this year, Siegel said he still doubted that will happen.

“The Fed was slow to catch onto inflation and they likely will then be forced to overreact to inflation and then be slow to change when we do get a slowdown. But at a minimum the Fed needs to get to a neutral policy rate,” he said.

But he added: “I emphasize again that I do not see a recession this year.”

(Image: Shutterstock)

2. Even if a recession happens, there will only be short impact from it.

“If we do get one, I will remind investors: a recession impacts earnings for one year or two,” Siegel said in his latest weekly commentary.

He also pointed out: “Stocks are the present value of discounted cash flows long into the future. Stocks overreact negatively during these earnings drawdowns when less than 5% of the value of a stock would come from this year’s earnings. Try to keep the long view as you hear increasing talks of the Fed causing a recession.”

(Image: Shutterstock)

3. The S&P may not experience a deep bear market.

“Growth stocks continue to come under enormous pressure during earnings season — as questions mount on the sustainability of earnings, supply constraints, and other margin pressures,” Siegel said.

He pointed to last week’s sell-offs in Amazon stock most harshly but also Alphabet (Google’s parent) and Apple — which “followed the halving in prices we had in Facebook and Netflix,” he said.

Several of those popular FAANG (Facebook, Amazon, Apple, Netflix and Google) tech stocks and “darlings of the growth era are now selling at P/E discounts to the broader market,” he noted.

But he said there’s a silver lining: “These lower and more reasonable valuations might help prevent the S&P from falling further into an official bear market like the Nasdaq.”

(Image: Adobe Stock)

4. The final Q1 GDP figure may end up not being negative.

In addition to last week’s earnings, the “big economic news last week was the negative GDP print that is raising questions about health of our economy and whether the Fed starts hiking rates right as we are about to enter a recession,” he said.

The street had consensus GDP growth of +1%, while the forecasting services that Siegel said he watches most closely had -0.6%.

“The actual reading came in at -1.4% and what caused the negative reading was a sharp unexpected downward move in the trade balance,” Siegel noted.

“This trade balance is a very volatile number and [it] should be reminded this is a preliminary GDP release that could be revised substantially higher,” he added.

(Image: Shutterstock)

5. There won’t be two straight quarters of GDP declines.

“The outlook for second quarter GDP is much better and currently forecasted at +2%,” Siegel said.

“Yet the first quarter negative GDP reading will be a tricky political issue for” Federal Reserve Chair Jerome Powell at this week’s Fed meeting, according to Siegel.

“I am sure reporters will ask Powell how he can hike rates 50 basis points with fears of a recession and this declining first quarter GDP. Yet hiking 50 basis points plus a string of 50 basis point hikes at upcoming meetings is required to combat our elevated inflation levels,” Siegel explained.

He added: “The Fed started communicating intentions to get to a neutral policy rate as quickly as possible and I don’t see the GDP report changing that dynamic.”

(Image: Adobe Stock)

6. There will probably be additional labor cost pressures.

The U.S. unemployment rate continues to be low. But Siegel noted: “We also had an employment cost index that came out higher than expected — I have talked about how labor costs are a lagging inflation indicator because employees often have fixed contracts that are re-negotiated on annual basis.”

He predicted: “We are likely to see further labor cost pressures with an economy at full employment and very little labor market slack.”

(Image: Shutterstock)

7. There are reasons to be upbeat and downbeat about inflation for the rest of 2022.

“The good news for inflation is we did have the second consecutive month of moderated M2 money supply growth — this latest reading came in at 4.5%, which translates to inflation levels of 2% or less in my models,” Siegel said.

But he added: “the year over year increase is over 10%, and we need these lower M2 money supply readings to come in persistently.”

While the money supply is now 25% above trend, inflation has only been about 6-7% above trend, he noted.

“This means there is still 18% more inflation in the pipeline (above the normal 2% rate) that should manifest over coming 3-4 years,” he added. “We have to start reducing these pressures and the first consecutive 2 months of lower growth in M2 is a positive in that regard.”

(Image: Adobe Stock)

Jeremy Siegel’s 7 Market, Economic Predictions for 2022

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1. There won’t be a recession this year.

2. Even if a recession happens, there will only be short impact from it.

3. The S&P may not experience a deep bear market.

4. The final Q1 GDP figure may end up not being negative.

5. There won’t be two straight quarters of GDP declines.

6. There will probably be additional labor cost pressures.

7. There are reasons to be upbeat and downbeat about inflation for the rest of 2022.

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Jeremy Siegel’s 7 Market, Economic Predictions for 2022

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More on this topic

1. There won’t be a recession this year.

2. Even if a recession happens, there will only be short impact from it.

3. The S&P may not experience a deep bear market.

4. The final Q1 GDP figure may end up not being negative.

5. There won’t be two straight quarters of GDP declines.

6. There will probably be additional labor cost pressures.

7. There are reasons to be upbeat and downbeat about inflation for the rest of 2022.

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