Jeremy Siegel outlines 2023 predictions for the stock market and economy

• Jeremy Siegel is one of the few market experts who expects price gains in 2023.
• The Wharton professor has toasted the Fed and outlined his guidance for 2023 in an interview with CNBC last week.
• Here are the top nine quotes from Siegel’s interview on inflation, the economy, and the stock market.

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Wharton Professor Jeremy Siegel was outspoken about the view that the Federal Reserve’s outrageous rate hikes could do lasting damage to the economy as more investors worry about a recession.

But unlike other stock market forecasts, his forecast for 2023 is actually optimistic, calling for at least 20% upside potential. That’s because he sees collapsing inflation and a resilient economy that too many investors underestimate.

In a lengthy interview with CNBC last week, Siegel outlined his views on what will happen to the stock market and the economy over the next year and why Fed Chair Jerome Powell could make a big mistake.

Here are the nine best quotes.

1. Why wages are not driving headline inflation:

“We had wage growth of 5% year-on-year. We have 8% inflation. The workers are trying to catch up and they are not. You’re still falling far short of pushing wages back down to 2% by basically telling the worker, “You’re not going to catch up on inflation, and we’re going to stop you from catching up on inflation.” It’s crazy politics,” Siegel said.

“So this idea that the worker is trying to catch up because they’ve lost so much purchasing power, something the Fed needs to crush, to me is extraordinarily bad Fed policy, and I don’t think it’s inflationary because it’s.” Inflationary is when wages rise before prices, not when they lag behind prices.”

2. On Wednesday’s Fed rate decision:

“My feeling is that it’s 50 [basis points]. The data will come in and they won’t even have any [rate hikes] in February. When that happens, wow, that’s good for stocks, good for bonds and stocks… You know, my feeling is that you don’t need more than that 50 basis points. Those 50 basis points might be too much in and of themselves.”

3. Why Siegel is so critical of the Fed:

“Yes, I am very critical of the Fed. Truth be told, here’s a Fed that caused inflation by expanding liquidity more than at any time in history, and is basically talking like it’s saying ‘we’re not going to do that’ to workers catch up on the inflation I caused.’ I think that’s a slap in the face to American workers. I just don’t think that’s justified.”

4. Where inflation is going from here:

“I still believe [inflation is over]…everything else I see on the price front [is down]… I’m not changing my view that inflation is basically over. These are catch-up wages and the Fed shouldn’t have policies to the contrary… There is tremendous evidence that inflation is slowing.”

5. Where the returns go from here:

“I find [bond yields] will continue to fall because I think we will grow more slowly. That wasn’t hot [November jobs] Report. And we will have a slowdown in inflation. Those are two good things for bonds, and they’re good for stocks, too.”

6. Where the Federal Funds Rate goes from here:

“I’m really craning my neck here, but I wouldn’t be surprised by the end of next year that we have a 2% hold on the fed funds rate. That’s way outside of consensus, I know that… But I’m just saying, if we get that data, we’re going to come down very quickly.” The effective fed funds rate is currently 3.8%

7. When the Fed will start cutting rates:

“The question will not be whether it will be a 25 basis point increase or what else. It will be when we will lower the interest rate? That can come as early as spring.”

8. On the recession potential in 2023:

“Winnings are important, to say the least. If the Fed stays tight, we will enter a recession. Winnings will not be $230 [per share for the S&P 500]they’ll be $200 or $190 for a couple of years or a year and a half,” Siegel said.

“GDP will be below 1% this year… That’s not strong. It’s not a recession, not yet. But if [the Fed] goes to 6%, you’ll have it.”

9. On the potential for economic growth in 2023:

“We have 4.5 million new workers and almost no increase in GDP. I think next year we will have much lower wage growth and much better GDP. Because the record drop in productivity we had this year will reverse in 2023. .. Productivity will increase, that improves margins and that’s good for profits.”