Stocks could be up 9% by the end of the year if the Fed does two things: Jeremy Siegel

• According to Wharton professor Jeremy Siegel, the stock market still has a lot of upside potential until the end of the year.
• While he warned that September and October could be choppy for stocks, gains could be made in December and November.
• Siegel outlined two things that need to happen for shares to climb another 9% by the end of the year.

LoadingSomething is loading.

Thanks for registering!

Access your favorite topics on the go in a personalized feed. Download the app

According to a Friday interview with CNBC, Wharton professor Jeremy Siegel expects the stock market to continue its upward trend through the end of the year.

He said the S&P 500 could ultimately rise 25% this year, another 9% gain from current levels, if two things happen.

First, Federal Reserve Chairman Jerome Powell has to fully acknowledge that inflation is indeed declining, in part due to a sharp pick-up in productivity growth.

“What’s happened in the market is that yields have gone up, real yields have gone up, real growth has gone up, and the reason real growth has gone up is because productivity has been so strong.” He [Powell] didn’t address any of that [at Jackson Hole]”Seal said.

He added that Powell is “stuck” in the notion that higher real growth will put downward pressure on wages, increase inflation and ultimately force the Fed to hike interest rates further.

“That’s not the story!” said Siegel. “The story is that we increase real growth because we increase productivity. In fact, the labor market is slowing down.”

Estimates for the forthcoming August payroll report are for around 160,000 new jobs to be created, about half the job growth of last August.

“I don’t think he does [Powell] “We really took into account what the market has seen over the past few weeks,” Siegel said.

Second, the Fed must hold off further rate hikes for Siegel’s upbeat forecast for the stock market to materialize. While futures markets are not currently pricing in another hike this year, Powell’s Jackson Hole speech raised the likelihood of at least another 25 basis point hike by the end of the year.

But even if the Fed meets both of these criteria set out by Siegel, the stock market could still see some volatility over the next several months before eventually rallying.

“September was the worst month of the year for decades… August became a tough month, especially the second half of August… Higher real interest rates certainly pose a challenge for equities at the same time. But I don’t get it.” “Not a major crack,” said he.

“After that we have September, October, restless months, [with] November [and] December is usually a much better year ending on a rebound. So I think we’re stable to up for the rest of the year… and if [Powell] does not increase [interest rates] more and says inflation [is] falling, it could be 20 to 25% for the full year.”