At the beginning of this year, there weren’t many bulls on Wall Street. Analysts and CEOs were bouncing back after a rough year in which the S&P 500 sank nearly 20% and the heavy Nasdaq Composite crashed 33%. For most, morale was low, but Wharton professor Jeremy Siegel was feeling optimistic.
“I think we should have a very good year for stocks, with US markets up 15-20%,” he wrote in his weekly WisdomTree commentary. inside. “Most of them think those gains will have to wait for the second half of the year, but I can see that happening in the first half.”
Turns out Siegel was right. The S&P 500 is up just over 13% year-to-date, and many of the bears on Wall Street are getting less bearish in the meantime. But Sigel did just the opposite, and again stood apart from the crowd.
“It’s hard to see a lot of bullish catalysts for the market in the second half of this year,” he said Tell CNBC on Monday, noting that many cyclical stocks are “already priced in for a mild recession” and he “wouldn’t be surprised if that happened.”
Although the unemployment rate remained near its pre-pandemic lows last month, Siegel pointed to the rise in jobless claims, especially over the past few weeks, as evidence that the economy is slowing under the weight of the Fed’s rate hikes. “The claims for unemployment benefits have not been good,” he said. Initial weekly jobless claims reached their highest level since October 2021 earlier this month at 264,000, data From the Bureau of Labor Statistics appears.
Siegel also cited “weak earnings” and the impact of student loan repayments on consumer spending as a potential headwind for stocks. Americans will be on the hook for about $18 billion a month when student loan payments resume Sept. 1, according to an estimate by investment bank Jefferies. Economists have repeatedly warned that this cost will slow Consumer spending, which has been surprisingly resilient in the face of rising inflation and rising interest rates.
Between June 16 and 19, Morgan Stanley surveyed nearly 2,000 student loan borrowers and 37% said they would need to cut their spending elsewhere to make their monthly loan payments when they resume, while 34% said they wouldn’t be able to make their payments at all. .
“Looking at student loan repayments, rising unemployment claims, I’m not talking about a disaster, but when people say, ‘Well, what’s the upside? “I just don’t see many factors,” Siegel said.
Rising home prices and mortgage rates are also slowing consumer spending, which accounts for nearly 70% of GDP growth, making a recession more likely, according to Professor Wharton.
“The cost of home ownership has tripled over the past three years. And what happened to real income? Stagnant,” he said, noting that many homebuyers won’t have money “for trips and cars and everything else that keeps the economy going.”
For Siegel, who has been a consistent critic of the Fed’s fight against inflation over the past year, arguing that they have raised interest rates too quickly and too high, increasing the odds of a recession, there is at least one positive way to look at an upcoming mild recession.
“The bright side of a mild recession is that not only will we get rate increases, but I think there is still – and I’ve been saying this even though everyone thinks there’s no possibility – (chance) that we’ll get rate decreases by the end of the year.