Stocks could rise another 5% to 10%, Wharton School and WisdomTree economist Jeremy Siegel said Monday, citing Federal Reserve Chair Jerome Powell's speech last week that signaled likely interest rate cuts at the central bank's meeting next month.
"Chair Powell’s speech at Jackson Hole was a proper and long overdue pivot —and the markets immediately rejoiced. This was the dovish signal investors had been hoping for, and even stronger than I expected Powell to deliver," Siegel said in his weekly commentary.
"The Fed’s newfound willingness to 'look through' tariff-induced inflation marks a major shift in policy tone, and I believe we are now firmly on a path toward easing, barring any major surprises. That’s excellent news for equities, housing, and rate-sensitive sectors," he wrote.
"Equities are in a strong position, especially considering the rally during a seasonally typically weak period. Markets are brushing that off and pressing toward new highs. I still see 5–10% upside from here, particularly if earnings hold up, which they have so far," the economist said.
He favors small cap and value stocks, especially those with high dividends.
"Big picture ... unless we see a sharp labor market reversal or a major geopolitical shock, I believe this rally still has legs," Siegel said.
If the Fed is no longer chasing tariff-related inflation, which Powell acknowledged as a one-time tax and exogenous, its focus will shift to the labor market, where momentum appears to be fading, according to the economist.
If the jobs report this month is weak enough, the Fed could cut its benchmark interest rate by 50 basis points in September, Siegel said. If not, he expects the central bank to shave 25 basis points at each of its three meetings through year-end, or 75 basis points total, targeting a rate near 3% by early 2026.
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