Jeremy Siegel, Wharton finance professor, famous for his optimistic market predictions, is warning on the market’s ability to match with inflation.
He predicts some trouble in the future while telling “Trading Nation”, on 1st October. He believes and says that inflation, in general, will be creating a much bigger problem than ever.
Jeremy warns there are severe risks associated with rising prices.
He also states that the pressure on Fed will significantly increase the taper process and that the market will not be ready for the upcoming challenge for the accelerated taper.
His cautious turn is a clear exit from his bullishness in January 2021. On 4th January, in Trading Nation, he specifically corrected that the Dow could cross 35000 this year, a 14% leap from 2021’s first market open. Also this year, the index hit an all-time high of above 35000 (35631.19) in mid-August. However, it closed at 34,326.46 on Friday.
According to Jeremy, the bigger risk on Wall Streat is Fed Reserve chair Jerome Powell, stepping aside from easy money policies earlier than expected owing to constant rising inflation. He noted that leniency on the equity market is associated with liquidity that the Fed has offered. If that will be snatched faster, it will also mean that interest rates will also witness great hikes, and hence both of these are not favorable for the equity market. Siegel is mainly concerned about the effect on growth stocks, mainly the technology. He says that Nasdaq, tech-heavy being 5% away from its highest record to be all prepared for its heavy losses.
The future stocks will also be witnessing challenges. The tilt will be towards value stocks. He also is expecting backdrop boding for companies having advantages from raising rates have great pricing power and delivery of dividends.
“Yield is limited and you will of course want freedom from long government bonds which he thinks will be suffering quite dramatically in the next half year. According to Siegel, the inflationary backdrop could set up underperformers consumer staples and utilities, popular for their dividends, for a better strong future.
Siegel says that they might have their day in the sun. “If the dividend is owned, companies can easily raise prices and as usual, dividends could be reed from inflation. They are changing and not very stable, just like a government bond. But they are protected from inflation and hold a positive yield.”
Siegel is also bullish on gold. He believes gold has become comparatively cheaper as an inflation hedge and quotes bitcoin’s prominence as a reason.
‘They’re shifting to bitcoin, and not thinking much of gold’
“The ’70s, inflation could never be forgotten. Everyone turned to gold and their interests also turned to collectibles. They are more interested in precious metals,” he said. “In the digital world, today bitcoin has earned huge popularity, and gold is ignored, I believe.”
He’s also not discouraged by the jump in real estate costs.
Jeremy does not think of it as a bubble. “Investors have projected partial inflation… Mortgage prices will witness a significant hike, knocking real estate.