Skepticism over tariffs suggests there's more running room for the current bull market, economist Jeremy Siegel said in his weekly column Monday.
While companies are coping with the tariff pressure — Nike expects a $1 billion tariff hit but beat its second-quarter earnings estimate — skepticism endures on trading desks, he wrote.
"The VIX (market volatility index), while off its spike during the Iranian flare-up, remains elevated, and hedgers have yet to capitulate. FOMO could add another 5%-10% to major indexes before earning a reckoning with any tariff earnings hit," the WisdomTree and Wharton School economist said.
As the S&P 500 hit a new high last week, Siegel noted the 10-year Treasury yield slipped to 4.25%-4.30%, reflecting an inverted yield curve. "This sends another signal that (Fed) policy is too tight. The downward drift in long rates coincides with signs of slowing growth," he added.
Siegel reiterated his view that market pockets such as small-cap value "can be a segment in which AI adoption can drive outsized efficiency gains, even if not directly plays on AI. Internationally, calmer energy markets lighten the load on Europe and Japan, while a modest pickup in Chinese stimulus could support global cyclicals."
Overall, Siegel wrote, declining bond yields, cooler housing and a slacking labor market give the Federal Reserve cover to pivot to interest rate cuts. "Until it does, equity momentum can grind higher on squeezed shorts, AI productivity and margin improvements." Persistent unemployment claims suggest companies are making AI-driven cost-cutting initiatives, according to Siegel.
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