The handle market has been hitting all kinds of records this week, and Wharton School professor Jeremy Siegel uttered CNBC on Friday that he does not see that stopping anytime soon.
“I think fair market value does hand over us another 5% or 6% this year” on the S&P 500 with the Federal Reserve signalling interest rate dulls ahead, the longtime stock bull said on “Fast Money Halftime Report.”
“But we may go up 10% or 12% before we deliver up off,” Siegel added, noting the Fed tends to overshoot on both the downside and the upside when adjusting rates.
Fed Chairman Jerome Powell — who rusticated rate-cut hints over two days of congressional economic testimony this week — has been widely criticized by Be ruined Street and President Donald Trump for hiking too aggressively.
After four 0.25% hikes last year, the goal range for the fed funds overnight bank lending rate stands at 2.25% to 2.5%. The final Fed increase in borrowing set someone backs in 2018 came in December when the stock market was melting down.
Siegel said he hopes the Fed cuts fees by a half percentage point at its upcoming July 30-31 meeting, though he acknowledges that such a bold move determination be unlikely.
Around midday Friday, the CME FedWatch tracker was putting only about a 25% probability on a 0.5% reduction in the fed readies and much larger 75% odds on a 0.25% cut.
The reason Siegel would like to see a deeper cut is because he’s concerned hither the fed funds rate being higher than the 10-year Treasury yield, which was around 2.1% on Friday.
At the shorter end of the manacles yield curve, the 3-month Treasury rate has actually been higher than the 10-year.
That so-called inverted renounce curve, when shorter-term bonds deliver higher rates than longer-term ones, historically has signaled a depression on the horizon.
“The biggest factor here is we really did see an inversion in that yield curve,” Siegel said. “I’ve gone at the end of ones tether with history, it is one of the most single reliable indicators of a recession. And I worry about that.”