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Jeremy Siegel

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Why Jeremy Siegel Is Cautious on Markets

By Dinah Wisenberg Brin

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Wharton economist Jeremy Siegel continues to be guarded about the financial markets, citing tightening lending conditions, recession concerns and potential ongoing banking stress.

“I remain cautious on the markets,” the Wharton emeritus finance professor said in his weekly column for WisdomTree, where he is senior investment strategy advisor.

“Value stocks are also taking hits from fears of further fallout from the regional banking failures,” he wrote. “I think tightening lending restrictions will further crimp the economy. The market is positioning for a mild recession and certainly there is risk it could deteriorate further until the Fed really pivots towards cutting rates.”

Among other points, Siegel noted that last week’s two inflation reports, the Consumer Price Index and Producer Price Index, both came in “quite tame,” at or below expectations. The market was likely positioned defensively for hotter inflation, which explains the positive reaction, he said. Data for May may turn out even better, Siegel wrote.

“What raised my eyebrows last week was jobless claims, which broke out higher and 20,000 job losses over expectation and the highest in well over a year,” he wrote, noting jobless claims are the economy’s earliest real indicator.

The government would need to report a string of high jobless claims to confirm a trend, ”but my sense is the labor market will weaken and this is the key data the Fed needs to see to pivot and end the rate hiking cycle,” he wrote. “Specifically, negative payrolls reports and a tick up in unemployment rate should halt the Fed.”

The economist also said he was surprised by an unexpected drop in consumer sentiment measured by the University of Michigan, which also reported higher long-term inflation expectations. That long-term inflation view is likely what sent bond yields higher Friday, Siegel wrote.

“When you combine a subdued outlook for the economy with falling consumer sentiment, rising jobless claims and fear of recession rising, value stocks suffered relative to growth stocks,” Siegel wrote. “The latter are viewed as bastions of stability and less economically sensitive.”

(Image: Lila Photo for TD Ameritrade Institutional)

Dinah Wisenberg Brin

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