Jeremy Siegel suggests that the stock market isn't experiencing a bubble and noted that small-cap and deep value equities are trading at historic discounts.
In his weekly column Monday, the Wharton School and WisdomTree economist also said he expects the Federal Reserve to cut interest rates by 0.25% in each of September, November and December, bringing the benchmark to 3.58% by year-end.
Earnings momentum in artificial intelligence bellwether stocks generally has been compensating for near-term market jitters, with higher-than-expected results for Meta and Microsoft showing “AI’s productivity dividend arriving, a powerful counterforce to tariff‑induced price pressure,” he wrote.
“Importantly, the Magnificent 7 ex‑Tesla trade at a forward P/E in the low 30s while the median S&P 500 constituent changes hands at 16–17 times next‑year earnings — hardly bubble territory with the 10‑year Treasury anchored near 4.25%,” he wrote.
“Rotation remains the missing piece. Small‑cap and deep‑value baskets are priced at historic discounts, yet institutional flows are still pinned to mega cap growth,” Siegel said.
When the Fed finally eases, financing costs for Main Street firms will fall, which may spark the hand‑off from the Magnificent 7 to the Russell 2000, he wrote.
Regarding cuts to the federal funds rate, the finance professor emeritus said, “a slower cadence, a ‘firm but flexible glide‑path,’” keeps the Fed’s hawks on board while acknowledging that real economic activity is cooling. “First‑half real GDP averaged only 1.2% at an annual rate, and forward indicators such as continuing claims are inching higher.”
Equities absorbed Fed Chair Jerome Powell’s hawkish Wednesday news conference tone until Friday, when disappointing payroll numbers and a significant downward revision for previous months pushed stocks lower, he noted.
“Policy is too tight for the real data,” Siegel said.
“Had these revised numbers been posted in real time, the Fed would have lowered interest rates, perhaps by 50 basis points. … I’ve long advocated for lowering rates over the past six months. This puts increasing pressure on Powell,” he wrote.
Powell's statement Monday that the labor market looks in balance "now looks foolish. Trump will come down on him hard in the coming days,” the economist said, reiterating his belief that the Fed chair could help keep the central bank politically independent by resigning.
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