‘This market is going to struggle this year… as good earnings collide with what I think will be higher interest rates both by the Fed and in the Treasury market.’
That’s Wharton professor and market bull Jeremy Siegel, reiterating his “neutral” stance on what he sees as a “flat to slightly upward tilting” year ahead.
He told CNBC this week he believes the Fed’s plan to raise rates and shrink billions of dollars in Treasury holdings will keep a lid on any upward momentum.
Siegel said “3.25% on the 10-year will give stocks a pause in 2018” and that the most investors could realistically hope for is a 10% rally in the market, compared with a 25% surge on the Dow last year.
“These gains that people are talking about — 10% to 15% a year this year and maybe next year — I just don’t think they’re going to be realized,” he said.
Earnings season has been fairly strong so far, and expectations call for growth of 17.3% for the period, the fastest rate since 2011. Siegel, however, explains that the benefits from this year’s “front loaded” tax-cut will wind down.
“Firms are actually going to lose depreciation deductions in future years. So, it’s going to be great in 2018,” he said. “2019 — you’re going to have to have a growing economy to generate earnings gains. It’s not going to be anywhere near as easy as it was this year.”
That doesn’t mean Siegel believes you should sell. “I’m not predicting a bear market,” he said. “Valuations are still very attractive for long-term investors.”
Watch Siegel’s interview: