The stock market pullback will become a buying opportunity if the Trump tariffs are temporary, Jeremy Siegel said this week, adding that he thinks they are.
He also recommended a more dovish Federal Reserve stance, citing a likely higher recession risk without such a change.
"Long-term, I remain constructive on equities even if I think it will be difficult to retake the February highs in the short run. Tariffs could knock 5–7% off U.S. per capita real income by reducing trade efficiency," Siegel, a WisdomTree senior economist and Wharton School emeritus finance professor, wrote in his weekly commentary Monday.
"But the U.S. still has structural advantages in innovation, capital markets, and entrepreneurial flexibility," he wrote. "Over time, those forces win."
As for the buying opportunity, Siegel wrote, "You're getting U.S. equities 10–15% cheaper than you were in February. Yet, international markets deserve attention. Many of these economies have lower valuations, solid fundamentals, and will benefit if Trump continues to shift imports away from China. Tariff rerouting benefits Asia ex-China."
Siegel is "deeply skeptical" of the economic rationale for the tariffs but said that "markets and businesses now must price in the possibility of prolonged supply-side shocks."
He also took aim at Jerome Powell, saying that the Fed chair's tone "remains too hawkish" despite recent soft inflation readings and evidence that the economy is weakening amid disinflation. Powell has "leaned into elevated inflation expectations and tariffs as a risk, brushing aside the clear progress in real-time data," Siegel noted.
The Fed shouldn't treat tariff-driven inflation as persistent price pressures that require tightening, Siegel said.
"If Powell doesn’t cut in June, he risks not only deepening a potential downturn, but also becoming the scapegoat for it," he wrote.
With President Donald Trump's tariff push increasing downside economic risks, he said, "this is precisely the type of environment where the Fed should be preemptively dovish, particularly with Q1 GDP estimates hovering between 0% and 1%. I believe the odds are greater than 50% that we get a recession with the current policy discourse."
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