What You Need to Know
Economic weakening bears close watching, Siegel said.
The unexpected can happen, he wrote.
The Fed should consider lowering rates, Siegel said.
Stock valuations are reasonable now even as the market faces notable risks for 2024, WisdomTree and Wharton School economist Jeremy Siegel suggested Monday.
“As I think ahead for next year, the clear risks are a ‘too stubborn’ Fed that won’t lower rates if it needs to,” as well as geopolitical issues, he said in a commentary posted on WisdomTree’s website.
“While the wars are now not expanding, anything can flare up. The unexpected can happen. We could have a cyber-attack on the infrastructure grid or on the financial system. That is a risk that sometimes is underestimated,” Siegel, Wharton School finance professor emeritus and WisdomTree senior economist, wrote.
With the S&P 500 index selling at 18 times earnings, including higher priced tech stocks, and 14 to 15 times earnings in non-tech stocks, though, he added, “those are reasonable multiples for the markets for all these risks.”
Small cap companies are priced for recession, with multiples closer to 12 times earnings, Siegel noted. “So an economic outcome better than these depressed expectations provides upside to these smaller companies.”
Siegel cited his primary concern for risk assets now: the Federal Reserve “staying stubborn and failing to consider lowering rates, as I think it should be.”
He also suggested the market is too excited about prospects for an economic soft landing.