Stock prices could come under further pressure during the Iran war, Jeremy Siegel said in his weekly commentary Monday, noting he remains bullish longer term.
"Investors should be careful not to overstate how much cheaper the market has become, Prices have fallen, but earnings estimates have not yet fully adjusted to the impact of higher energy and input costs. Bottom-up analysts tend to wait for company guidance before cutting numbers, so consensus forecasts often lag reality during fast-moving macro shocks," wrote Siegel, a Wharton School and WisdomTree economist.
"That means valuation compression is real, but probably not as large as it appears at first glance. If oil stays elevated and the conflict drags on, earnings expectations are likely to come down, and that could create additional near-term pressure on equities," Siegel said.
He maintains underlying optimism amid near-term concern.
"I remain bullish over the long run because the U.S. economy is still structurally strong and far less vulnerable to an oil shock than it was in earlier decades. But in the short run, caution is warranted," Siegel said.
Solid employment, rising money supply and renewed inflation risk argue for higher real interest rates than the market had hoped for only a few weeks ago, he added. "That does not end the bull market, but it does mean the path forward is likely to be bumpier until we see a lasting and real break in the geopolitical pressures hanging over the market."
Siegel wrote that he doesn't expect the Federal Reserve to raise interest rates but it's possible, while a Fed rate cut has become less likely.
(Photo: Lila Photo for TD Ameritrade Institutional)
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