US Stocks Won’t Soar, Fed Pause Hopes Are Driving Rally

  • Wharton professor Jeremy Siegel said hopes of a Fed pause are fueling the stock market rally. 
  • Halting interest-rate hikes now could lower the chances of a recession, the finance guru said.
  • Siegel also said US stocks are unlikely to surge this year despite momentum from AI hype. 

Wharton professor Jeremy Siegel has pointed to investors’ hopes that the Federal Reserve will halt its interest-rate hiking cycle as a key driver of the recent strength in stocks, and argued a pause would a lower the risk of a US recession.

The prospect of a Fed pause is a “major source of a rally today,” Siegel said in a CNBC interview on Thursday.

“As you know, I’ve been warning about the Fed going too far, the delayed effect of monetary policy, cumulating for a downturn in the second half,” he continued. “If they can pause now, this lowers the probability that we’re going to have a recession.”

In a separate weekly commentary, Siegel said he’s keeping an eye on labor-market and housing data to determine the Fed’s next move. “The economy ostensibly is humming along without any meaningful slowdown, but we should not assume the opposite — that everything is booming either,” he said. 

Asked whether stocks will soar or slide, Siegel said he didn’t think the former was on the cards, but noted the powerful boost that artificial intelligence has provided to tech stocks such as Microsoft and Nvidia in recent weeks.

US stocks have performed well this year, with the Nasdaq 100 and S&P 500 up about 33% and 10% respectively since the start of January. The stunning rally in tech stocks partly reflects explosive hype around AI following to blockbuster debut of OpenAI’s ChatGPT tool.

“Those sectors can catch fire, and that fire can continue through the summer,” Siegel said of the tech industry. He also reaffirmed his view that the craze over AI stocks isn’t anywhere near a bubble, while noting valuations could eventually go overboard. 

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