- Economist Jeremy Siegel believes that stocks are close to the bottom despite ongoing volatility.
- Sizzling inflation rocked the S&P 500 last week as it plummeted over 6%.
- But Siegel said that the index has probably already priced in a “mild recession”.
The S&P 500 has likely already priced in a recession, according to Jeremy Siegel, which should limit the extent to which the index can fall from its current position.
“We’re closer to the lows than the highs,” Siegel, who is a professor of finance at the Wharton School and a regular commentator on markets, told CNBC’s Friday “Halftime Report”. “I actually think that the market is already discounting a recession – it’s being priced to that.”
Siegel’s optimism comes after a dismal week for the S&P 500, as it plummeted by 6%. The index has now lost 18.4% year-to-date – just short of the 20% losses that would qualify it as a bear market.
High inflation, rising interest rates, and recession risks are all spooking investors. Inflation hit a four-decade high of 8.6% in May, while the Federal Reserve has started hiking interest rates to try to tame soaring prices.
But Siegel believes markets have already priced in the potential headwind of a recession.
“We’re pricing in a mild recession,” he told CNBC. “I’m not saying how severe the recession actually will be.”
Siegel acknowledged that his own research demonstrates that markets correct on average by 31% during a recession – but he said this was likely skewed by outsized downturns in 2000 and 2008.
“Don’t forget [the 31% average] contains some whopper recessions that we’ve had — the financial crisis and of course the tech bubble, when the market was far more overvalued than today,” he said.
Siegel also told CNBC investors will likely continue to hold equities because they are unlikely to find yield elsewhere. 10-year Treasury notes currently offer a yield of just 3.16%, while riskier assets like cryptocurrencies have been hammered during the broader market downturn.
“Even if the Fed interest rate is at 3 or 3.5%, is that real competition for the real asset that is stocks?” he said. “History shows that dividends move with inflation, so you’re still getting a real return.”