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Stocks are set to experience a year-end rally, continuing the historical trend of a strong November for the market.
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According to Jeremy Siegel, bond yields are nearing their peak, signaling the end of a historic sell-off.
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The upcoming FOMC meeting is unlikely to bring much change for investors, as the Fed is expected to maintain
rates at their current level.
The recent stock sell-off has left investors concerned about their gains in 2023, but historical patterns suggest
that they are about to enter a traditionally strong month that could lead to a year-end rally.
Wharton professor Jeremy Siegel believes that strong seasonal factors and key developments will contribute to stock
gains as 2023 comes to a close. “In the last 25 years, November is the second-best month of the year, just slightly
behind April,” he told CNBC on Monday. “So I do think we’re going to have a year-end rally coming up.”
“I think valuation is persuasive,” he added. “I actually think growth is going to be better next year, and I think
that the higher real interest rates we’ve seen reflect optimism about growth in 2024. That will put pressure on
the stock market because it has to account for those higher earnings, but I believe those higher earnings will
materialize.”
The Federal Reserve is convening this week and will announce its decision on interest rates on Wednesday. However,
Siegel believes the meeting is unlikely to provide any new information to investors. The Fed has already raised rates
11 times since March 2022, pausing twice, including at the last September meeting.
“The Fed is certainly not going to take any action on Wednesday and they will leave the door open,” he said.
Much of the recent decline in stocks was triggered by Fed chair Jerome Powell’s announcement that rates will remain
elevated for a longer period than the market anticipated. This led to a surge in Treasury yields, causing investors
to sell bonds and resulting in a historic crash that rivals some of the biggest in history.
However, Siegel believes that yields are approaching their peak. “I think we’re pretty near the top of the 10-year,
maybe around five and a quarter,” he said, suggesting a potential ceiling for the 10-year Treasury of 5.25%. He
also noted that this level is nowhere close to the yields witnessed in the 1980s, which had single-digit
price-to-earnings ratios.
The S&P 500 has gained 7.7% year-to-date and about 16% since its low in October 2022. While valuations of the so-called
“Magnificent Seven” tech stocks appear high, Siegel pointed out that valuations in the rest of the market are at
historic lows.
Read the original article on Business Insider
