Jeremy Siegel
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Jeremy Siegel expects a rising stock market in 2023 as interest rates finally reverse part of their 2022 gains.Additionally, he expects economic productivity to increase as companies get more efficient.“Productivity is going to go up, that improves margins and that’s good for profits,” Siegel said.
US stocks are poised to reverse at least some of their losses seen in 2022 and rise next year as interest rates fall and economic productivity increases, Jeremy Siegel said in an interview with CNBC on Friday.
The Wharton professor has been critical of the Federal Reserve this year and believes the central bank is over tightening financial conditions via its recent streak of outsized interest rate hikes of 75 basis points. But Siegel has trouble believing that interest rates are going to rise any further in 2023, and instead expects them to fall.
“My feeling is it’s 50 [basis point rate hike in December], the data is going to come in, and they [the Fed] won’t even have any [rate hikes] in February. If that does happen, wow that’s good for stocks, good for bonds and stocks,” he said.
Siegel’s confidence stems from the fact that inflation is starting to fall quickly, especially when you consider current home rental prices, and that the economy is likely to see a slowdown in growth once the Fed’s rate hikes start to fully impact the broader economy.
“I put the actual rental housing prices in, the actual Case-Shiller prices into the CPI Index. And guess what? Core inflation over the last two months has been negative… it is coming down so rapidly,” he told CNBC.
And Siegel reminded viewers that the Fed ultimately follows the data, and any negative turn in economic data could spur sooner-than-expected interest rate cuts as the Fed will change its tone. Falling interest rates are typically viewed as a tailwind for stock prices.
“Remember a year ago in September, Jay Powell said: ‘No increases in Fed funds will be necessary for 2022.’ This was in September of last year. So now, when they increased it how many times, are we now to believe that they know what is going to happen in 2023? No. They’re just going to follow the data,” Siegel said.
Another element that has Siegel excited for stocks in 2023 is his view that economic productivity is going to rise as companies put more focus on profits.
“We have 4.5 million new workers and almost no GDP increase [in 2022]. I think next year we’re going to have much lower payroll growth, and much better GDP, because that record decline in productivity we had this year is going to reverse in 2023,” he said.
“People are going to start working again and say ‘you can’t fire me anymore.’ Firms are going to be firing people who don’t work. Productivity is going to go up, that improves margins and that’s good for profits,” Siegel said. And over the long-term, higher stock prices are highly correlated to higher corporate profits.
He has said in recent weeks that he expects the stock market to see gains of between 20% to 30% in 2023.