A market correction — a downturn greater than 10% — "is now much more likely," according to Jeremy Siegel, who noted stock and oil price volatility resulting from the Iran war.
"At this point, however, I do not see a recession or a bear market. If there is any news of a ceasefire, stocks will soar. The fundamentals of the economy are still very strong," Siegel, a Wharton School and WisdomTree economist, said in his weekly commentary Monday.
"Markets face a complicated mix of signals," he wrote, noting that last week's payroll report "came in dramatically weaker than expected" and that previous months were revised downward. "Taken together, the last two months essentially show zero payroll growth. Normally that type of data would signal a sharp slowdown in economic activity. Yet the rest of the economic evidence tells a very different story."
Institute for Supply Management reports for February were very strong and January retail sales met expectations, according to Siegel.
"In other words," he wrote, "the real economy does not look weak at all. We are seeing stable, even rising GDP growth at the same time payroll growth has stalled. That combination points to one explanation that investors should not ignore: a sharp rise in productivity" from technology.
The payroll numbers were puzzling because other labor indicators don't confirm widespread weakness and initial jobless claims aren't signaling layoffs, he said. The report "likely tells us more about productivity than about recession risk. If the economy is producing more output with fewer workers, that supports margins and earnings growth in the near term. The bigger uncertainty lies in geopolitics and energy markets, not domestic demand."
The economy appears much more resilient than those payroll numbers suggest, Siegel said.
"If productivity gains continue and geopolitical tensions ease — even modestly — the market could be poised for a powerful rebound," he wrote.
Credit: Lila Photo for TD Ameritrade Institutional
The author of this article can be reached at dinah.brin@arc-network.com.
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