Wharton emeritus professor and WisdomTree senior economist Jeremy Siegel predicts continued upward momentum for markets going into next year, with the Federal Reserve expected to implement four more rate hikes in the next six meetings. The S&P 500 index has surged more than 23% this year to new all-time highs, thanks to the Federal Reserve’s aggressive rate cut in September and strong economic data and corporate earnings.
Siegel warns that it is dangerous to assume that the current high stock market returns are the new normal and sees no slowdown in sight, with momentum likely carrying on into next year. He predicts a more normalized gain of 7.5% to 8% with 2% inflation in 2025 and believes that the Fed will continue to act aggressively if they see any weakness in the economy. He calls for another 100 basis points of rate cuts by June 2025, with the possibility of more if the labor market weakens.
The renowned economist, known for his book “Stocks for the Long Run,” believes that the current growth in money supply is a positive sign for the economy, indicating that people are taking out loans. Despite expecting the Fed funds rate to hit 3.5% and the 10-year bond to reach 4.5% by mid-2025, Siegel advises investors to stay invested in equities as they are regal assets and a perfect inflation hedge. He acknowledges that the S&P 500 market may look expensive, but points out that valuations outside of the mega-cap tech names are more reasonable, and international equities offer more appealing price to earnings ratios.
Siegel also warns of the potential for a bubble in private market investments such as private equity and private credit, particularly in the event of a recession where defaults could increase. While cautiously optimistic about the current market conditions, he acknowledges that a bear market is inevitable at some point, as history has shown. However, he advises against selling during a recession or bear market, emphasizing the importance of staying invested for long-term growth.
In conclusion, Siegel’s insights suggest that while the current market conditions are favorable, investors should remain cautious and stay diversified in their investments. His predictions for continued market growth, coupled with the Federal Reserve’s anticipated rate hikes, indicate a positive outlook for the economy going into 2025. However, he also highlights potential risks such as private market bubbles and the inevitability of a bear market, urging investors to be prepared for fluctuations in the market.
