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Wharton Professor Jeremy Siegel suggests that if unemployment rates remain low, earnings figures may be underestimated.
What Happened: Siegel's comments came after a strong jobs report in January, and ahead of February’s report, that has led some to believe that the Federal Reserve may consider a 50-basis point rate hike at the March meeting. Seigel said Fed Funds futures are currently pricing in four 25-basis point hikes.
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Although an interest rate hike is not positive news for stocks, Siegel said in a Friday CNBC interview that a strong job market and economy could lead to increased earnings figures.
The Wharton Professor said that many companies are being cautious in their guidance, because "they are still worried there may be a big downturn." However, he thinks that there may be a lot of earnings beats in the second half of the year rather than shortfalls, as seen in the fourth quarter of 2022.
Also Read: Larry Summers Says Soft Landing 'Looks More Possible': Unemployment Vs. Inflation
A recession — at least in the first half of the year — is out of the question Seigel said, as the number of CEOs that see a downturn coming has been more than cut in half since the end of last year, when there were a “record number” of forecasters forecasting a recession.
“[This] has been cut in half because of the strength of the job market and the strength of the first quarter,” the professor said.
Siegel noted that there is a struggle between the numerator, which represents earnings, and the denominator, which is interest rates. Both have risen over the last few weeks, but the professor believes that hitting the economy too hard with a 50-basis point hike would be a mistake.
Although some argue for such action, like Jason Furman, Siegel says that on-the-ground price indexes and commodity indexes indicate that inflation is not as big a concern as it once was.
Big Move: Siegel predicts that the S&P 500 (NYSE:SPY) may see a 10% to 15% increase this year, with the possibility of surprising gains in the first half of the year, despite higher interest rates.
He believes that a higher path of interest rates would be associated with a higher path of GDP and profits, leading to overall growth in the market.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.