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Jeremy Siegel

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Jeremy Siegel: 2 Big Stock Risks to Watch in 2024

By Dinah Wisenberg Brin

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What You Need to Know

  • Economic weakening bears close watching, Siegel said.
  • The unexpected can happen, he wrote.
  • The Fed should consider lowering rates, Siegel said.

Stock valuations are reasonable now even as the market faces notable risks for 2024, WisdomTree and Wharton School economist Jeremy Siegel suggested Monday.

“As I think ahead for next year, the clear risks are a ‘too stubborn’ Fed that won’t lower rates if it needs to,” as well as geopolitical issues, he said in a commentary posted on WisdomTree’s website.

“While the wars are now not expanding, anything can flare up. The unexpected can happen. We could have a cyber-attack on the infrastructure grid or on the financial system. That is a risk that sometimes is underestimated,” Siegel, Wharton School finance professor emeritus and WisdomTree senior economist, wrote.

With the S&P 500 index selling at 18 times earnings, including higher priced tech stocks, and 14 to 15 times earnings in non-tech stocks, though, he added, “those are reasonable multiples for the markets for all these risks.”

Small cap companies are priced for recession, with multiples closer to 12 times earnings, Siegel noted. “So an economic outcome better than these depressed expectations provides upside to these smaller companies.”

Siegel cited his primary concern for risk assets now: the Federal Reserve “staying stubborn and failing to consider lowering rates, as I think it should be.”

He also suggested the market is too excited about prospects for an economic soft landing.

After inflation data came in lower than expected last week, the economist wrote, “I was a little surprised how strong the narrative came that these data virtually guarantee a soft landing. The recent data definitely indicates a dramatically increased probability of a ‘landing.’ But it is far from certain that the landing will be soft.”

Inflation is subsiding as the economy is weakening, Siegel noted, adding that “a little weakness is not a big problem as long as it doesn’t snowball into something more serious.” He cited a “rather significant” increase in jobless claims, an indicator he watches closely, and noted recent data on industrial production and capacity utilization are coming in weak.

“I am not suggesting the economy is falling apart, but this recent softness bears watching very closely,” Siegel said.

The economist, who doesn’t expect an interest rate increase in December, said the Fed could strengthen sluggish money supply growth by lowering interest rates. “I think it’s time for us to ‘dis-invert’ the yield curve by bringing short rates below the long-term rates,” he said.

The Fed isn’t even discussing a rate cut, noted Siegel, who thinks central bankers will do so at their March meeting, or possibly in January. “Inflationary expectations are under control. Commodities are under control. The Fed should not stick to a false narrative of the risks of the 1970’s repeating to postpone necessary rate cuts,” he said.

Photo: Lila Photo for TD Ameritrade Institutional

Dinah Wisenberg Brin

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